OECD warns about impact on economy of a possible extension of the Israel-Hamas conflict

The OECD has issued a warning about what could happen to the global economy if the Israel-Hamas conflict broadens or intensifies, particularly with ripple effects that could reach energy markets, financial conditions, and consumer prices across North America. In the organization’s latest projections, global growth for the coming year shows signs of softening, with a realistic scenario that places it around the mid to upper twos in terms of percentage, contingent on the trajectory of the conflict and how quickly markets can adapt to new risk. This assessment underscores that any escalation in the Middle East could tilt inflation upward and slow activity in several major economies, including Canada and the United States, even if the direct spillovers to trade are limited in the short run. The OECD emphasizes that the main channel would be energy—oil and gas prices reacting to heightened geopolitical risk—rather than a sudden collapse in demand. In practical terms, a modest shift in the price of crude by about ten dollars per barrel could lift global inflation by roughly 0.2 percentage points and trim global growth by around 0.1 percentage points in the initial year. These numbers illustrate how sensitive macroeconomic outcomes are to geopolitical shocks, even when underlying fundamentals such as productivity and investment growth remain sound. The organization maintains that the current forecast for global growth remains a few tenths above or below the baseline depending on how markets price risk, with its central scenario slightly dampening growth but not triggering an outright crisis, provided the conflict does not spread in a broad regional fashion or provoke severe supply disruptions. In Canada and the United States, the risk is not just about overseas developments but also about how domestic policy responses, inflation expectations, and financial conditions adjust to evolving risk perceptions. The OECD notes that the impact tends to be felt more in energy-intensive sectors and in periods of already elevated inflation, when households and firms are more sensitive to price changes. As a result, consumer confidence can wobble and investment plans may be delayed, casting a shadow over near-term demand. Yet the organization also points out that the effects are not uniform across regions or sectors; countries with diversified energy portfolios, resilient labor markets, and credible monetary and fiscal frameworks may weather the episode with less disruption. The takeaway for North American policymakers and markets is a warning to prepare for a range of outcomes, including scenarios in which inflation edges higher for a while before stabilizing, and growth slows in the short term before resuming a more solid path as supply chains adapt and energy markets normalize. The OECD stresses that the medium-term outlook remains cautiously positive if geopolitical tensions ease, if there is progress in energy market stabilization, and if monetary policy remains calibrated to anchor inflation expectations without choking growth. In other words, even with a potential uptick in energy prices, a stable macroeconomic framework and prudent policy responses can help cushion the bilaterally connected economies of Canada and the United States against sharper downturns while preserving room for growth in the longer run. Citations from the OECD’s latest briefing are used to contextualize these projections and to highlight the interconnected nature of global markets, especially in how regional risk can translate into price adjustments for households and firms alike across North America. In summary, the possibility of an extended regional conflict introduces meaningful downside risks to the global outlook, but proactive policy choices and market resilience can help mitigate these effects and support continued, though tempered, expansion in Canada, the United States, and beyond. This assessment reflects a careful balance between vigilance and the recognition that the global economy has shown a notable capacity to adapt to shocks, provided policymakers act in a timely and coordinated manner.