Question Period Note: OECD Economic Outlook – June 2026

• The Organisation for Economic Co-operation and Development (OECD) released its Economic Outlook on June 3.
• The Middle East conflict is expected to weigh on growth and put upward pressure on headline inflation through higher energy prices. Given the high level of uncertainty, the OECD presents two different scenarios for the global economy. The reference forecast assumes that disruptions remain relatively short-lived, with energy production in the Gulf gradually recovering from late in 2026Q2. Energy prices are expected to gradually ease from mid-2026 onward, broadly in line with current futures market expectations as of 26 May: scenario assumes Brent crude oil price peaking at an average quarterly value just under USD 102 per barrel, with the average annual value of USD 92 per barrel in 2026 and USD 80 per barrel in 2027.

• The evolving conflict in the Middle East is creating new challenges for the global economy by increasing energy prices, inflation pressures, and uncertainty.
• Canada is not immune to these headwinds. Still, the OECD expects Canada to have the second strongest growth in the G7 in both 2026 and 2027, behind only the United States.
• The OECD noted that shifting expenses from operating spending toward increased investment, particularly in infrastructure, will support long-term economic growth and productivity. This is consistent with the Government's focus on major projects, housing, energy infrastructure, and trade-enabling investments.
• Canada is expected to maintain the strongest fiscal position in the G7 in 2026 and 2027, with by far the lowest net-debt-to-GDP ratio.

N/A

• Global Outlook: Under the reference scenario, global growth is projected to slow from 3.4% in 2025 to 2.8% in 2026 (down 0.1 p.p from the March 2026 Interim Assessment) before picking up to 3.1% in 2027 (revised upward by 0.1 p.p). The conflict poses challenges against a background of an otherwise solid underlying momentum in the global economy, with output boosted by strong AI-related investment, production and trade, and supportive financial and fiscal conditions.
• Regional Outlook: Most economies are forecasted to follow the same pattern as global growth; moderating in 2026 before slowly recovering in 2027. Commodity-importing developing economies and the Gulf economies will be more affected. U.S. real GDP growth is forecasted to slow down from 2.1% in 2025 to 2.0% in 2026 (unchanged) and 1.8% in 2027 (+0.1 p.p). Benefits from stronger energy-sector exports will be offset by the negative impact of higher energy prices on inflation and households. China’s projected growth of 4.5% in 2026 (+0.1 p.p) and 4.3% in 2027 (unchanged) marks a slowdown from 5.0% growth in 2025. The Euro area growth is expected to slow down from 1.4% in 2025 to 0.8% in 2026 and pick up to 1.2% in 2027(all unchanged).
• Inflation Developments: The OECD expects that headline inflation in G20 economies will rise to 4.0% in 2026 (unchanged) from 3.4% in 2025, reflecting higher energy and other commodity prices. Inflation should ease to 3.1% in 2027 as energy price pressures fade and food price pressures peak.
• Canadian Economic Outlook: The OECD expects real GDP growth in Canada to slow from 1.7% in 2025 to 1.2% in 2026 and then to pick-up to 1.7% in 2027 (all unchanged), compared to the Spring Economic Update 2026 outlook of 1.1% for 2026 and 1.9% for 2027. The OECD expects the Canadian economy to see the second fastest rate of growth among the G7 this year and next year, behind the U.S. The OECD forecast was finalized prior to the release of Canada’s 2026Q1 GDP data on May 29th, which showed the Canadian economy stalled in 2026Q1.
• Canadian Fiscal Outlook: Canada’s fiscal position remains one of the strongest in the G7, with moderate deficits and the lowest net debt burden. The general government deficit is projected at 2.4% of GDP in 2026 and 2.2% in 2027, keeping Canada ranked second in the G7 in both years, behind Japan. The OECD notes that “the ongoing shift in government outlays from operational spending toward higher investment, including in infrastructure, should continue to support long term potential and productivity growth.” Net debt remains the lowest in the G7 by a wide margin over the projection horizon, after reaching a low of 6.1% of GDP in 2025 (measured by the OECD), and is expected to edge up only modestly to 6.7% by 2027.
• Risks: The OECD notes significant downside risks to the outlook under both scenarios. Prolonged disruptions to the supply of energy could for example adversely affect AI investment, while tighter financial conditions, higher energy prices and shortage of key products raise risks in emerging-market economies.
• Policy Recommendations: The OECD notes that monetary policy should remain vigilant to ensure that underlying inflation pressures are durably contained. Government-provided relief to offset high energy prices should be increasingly targeted to contain fiscal costs – particularly if the disruption is prolonged. Efforts to strengthen supply chain resilience should be intensified.