Dawn Business
Global economy struggles to deal with trade disruptions
• GDP growth projected to slow to 2.9pc in 2026, rise to 3.0pc in 2027 • WTO chief urges overhaul of global trade system • G7 foreign ministers meet near Paris to discuss war • Asian countries, including Vietnam, Thailand and Sri Lanka, turn to Russian oil PARIS: The escalating conflict in the Middle East has knocked the global economy off a stronger growth path, the Organisation for Economic Cooperation and Development (OECD) warned on Thursday, as a near-halt in energy shipments through the Strait of Hormuz threatens to push inflation sharply higher. The Paris-based organisation said the global economy had been on course for stronger-than-expected growth before the war in Iran erupted, but that prospect has now all but disappeared. Global GDP growth is now projected to ease from 3.3 per cent last year to 2.9pc in 2026 before edging up to 3.0pc in 2027, as an energy price surge and the unpredictable nature of the conflict offset tailwinds from strong technology-related investment, lower effective tariff rates and momentum carried over from 2025. With energy prices now soaring, G20 inflation is projected to be 1.2 percentage points higher than previously expected in 2026 at 4.0pc, before easing to 2.7pc in 2027. In an adverse scenario where energy prices peak higher and stay elevated longer, global growth would be 0.5 per cent points lower by the second year of the shock and inflation would be 0.9pc points higher, the OECD said. US outlook The war is compounding an already complex picture on trade. US bilateral tariff rates have declined following the US Supreme Court ruling against tariffs imposed under the International Emergency Economic Powers Act , with particularly large reductions for several emerging market economies including Brazil, China and India. Nonetheless, the overall US effective tariff rate remains well above that prevailing prior to 2025. In China, growth is projected to ease to 4.4pc in 2026 and 4.3pc in 2027, both in line with the OECD’s previous forecasts. Euro area GDP growth is anticipated to slip to 0.8pc in 2026, as higher energy prices weigh on activity, before increasing to 1.2pc in 2027 helped by stronger defence spending. That marked a sizeable downgrade from December when the OECD had forecast 1.2pc growth in 2026 and 1.4pc in 2027. In Japan, growth is projected at 0.9pc in both 2026 and 2027 — both unchanged, as the rising cost of energy imports offsets robust business investment. ‘Overhaul global trade rules’ Meanwhile, the WTO chief called on countries on Thursday to overhaul global trade rules, telling them the old world order had gone for good, following a year of turmoil sparked by US tariffs and wider geopolitical tensions. Ngozi Okonjo-Iweala set out a list of problems facing the World Trade Organisation - including the paralysis of its dispute-settlement mechanism - at the start of a four-day meeting of the body in Cameroon. “The world order and multilateral system we used to know has irrevocably changed. We will not get it back … We must look to the future,” the WTO Director-General said. European and allied nations looked for ways to narrow differences with the United States on the Middle East war as a two-day meeting of G7 foreign ministers got underway outside Paris. While President Donald Trump says Washington is pursuing diplomacy with Iran while threatening even more intense military action, American allies are hoping that the United States will set out its position clearly. The start of the two-day meeting was marked by the absence of US Secretary of State Marco Rubio. In contrast to usual protocol, and in a sign of the distance between the United States and its allies, there is to be no joint communique at the end of the meeting. Meanwhile, Asian countries including Vietnam, Thailand, the Philippines, Indonesia and Sri Lanka are lining up to buy Russian oil as the Iran war blocks supplies, raising the possibility that demand may exceed supply, several sources including Russia said. Since the war in Ukraine prompted European customers — once the biggest buyers of Russian oil and gas — to shun Moscow, India and China have accounted for around 80pc of Russian oil exports. Turkey has also been a significant buyer. Published in Dawn, March 27th, 2026
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