OECD raises 2026 global growth forecast, predicts one more Fed rate hike this year

European stocks, U.S. futures, and precious metals all fell sharply this evening amid rising expectations of further interest rate hikes.

As of press time:

• Germany's DAX 30 fell 0.80%
• UK's FTSE 250 dropped 0.55%
• Euro Stoxx 50 declined 0.50%
• Nasdaq futures slipped 0.25%
• Spot gold fell over 1%
• Spot silver dropped nearly 3%

OECD Upgrades Global Growth Forecast

On September 23, the Organisation for Economic Co-operation and Development (OECD) released its latest economic outlook, raising its 2026 global GDP growth forecast to 2.9%, up from the 2.8% estimate in June.

The report noted that while geopolitical tensions in the Middle East have impacted the global economy and growth slowed in the first half of the year, many economies have shown resilience. Factors such as ample oil inventories, new energy supply outside the Gulf region, and supportive measures in some countries have helped mitigate the shock.

Meanwhile, continued activity in the artificial intelligence sector has boosted investment, production, and trade.

However, the OECD cautioned that the global outlook remains highly dependent on developments in the Middle East conflict. Energy prices have risen again as Gulf oil production and exports continue to be affected. Extreme weather and supply constraints have also pushed up prices of some agricultural products in recent months. In addition, ongoing adjustments to trade policies—including tariffs and export restrictions—have increased policy uncertainty and supply disruptions.

Inflation and Monetary Policy Outlook

The OECD expects short-term inflationary pressures to rise due to higher commodity prices, but these should gradually ease by 2027.

• G20 economies: Overall inflation is projected to fall from 4.1% in 2026 to 3.6% in 2027.
• Advanced economies (core inflation): Expected to decline from 2.7% to 2.5% over the same period.

Facing renewed energy price increases and inflation above target, the OECD recommended that central banks ensure inflation expectations remain stable and adjust monetary policy in line with price pressures and growth prospects. Governments should implement targeted measures to cushion the impact of rising energy costs while maintaining incentives to reduce energy use and diversify supply.

Over the medium to long term, the OECD called for structural reforms to further diversify energy supply, improve energy efficiency, and strengthen economies' resilience to supply shocks.

Latest Rate Hike Projections

The OECD forecasts the following policy moves:

• Federal Reserve: One more rate hike this year
• Eurozone, Australia, South Korea: Further "moderate" rate increases
• Japan: Further policy rate hikes
• Bank of England and Bank of Canada: Rates to remain unchanged

These projections differ slightly from market expectations. Money markets are nearly evenly split on whether the Fed, ECB, and BoE will deliver one or two more rate hikes by year-end. Traders are more confident that Japan will raise rates only once more, while the Bank of Canada is expected to hike by 25 basis points.

The OECD noted that the global growth path remains broadly unchanged compared to June. Among the modest adjustments, Canada and France saw notable downgrades—Canada due to trade tensions with the U.S., and France amid a period of political instability.

Eurozone PMI Hits Multi-Year High

Data released on September 23 showed that eurozone private sector activity accelerated significantly in September, with the composite PMI rising to its highest level in nearly three and a half years.

• Composite PMI: 53.1 in September, up from 52.0 in August (highest since April 2023)
• Services Business Activity Index: 53.0, up from 51.6 (10-month high)
• Manufacturing Output Index: 53.4, up from 53.3 (55-month high)
• Manufacturing PMI: Unchanged at 52.7

Both manufacturing and services expanded, with new orders and export demand continuing to recover. However, input and output price increases also accelerated, reinforcing the case for further ECB rate hikes.

Broader Growth Base

Growth in the eurozone is becoming more broad-based:

• Germany: Expanded for the third consecutive month, at the fastest pace in nearly a year
• France: Ended several months of weakness, recording its first expansion in 10 months
• Other eurozone economies: Continued to show steady growth

This marks a shift from earlier reliance on a few countries, with core economies now contributing to growth.

Demand-Side Recovery

New orders in the eurozone grew for the third straight month, at the fastest pace since May 2022. Export orders also increased for the second consecutive month—a notable turnaround after 53 months of decline—reflecting a significant improvement in external demand.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said in a statement:

"Manufacturing, led by Germany, is enjoying its best growth period in over four years, driven by AI and rising defense spending. But services growth is also accelerating, suggesting a broader improvement in economic activity."

ECB Rate Decision and Market Expectations

The European Central Bank raised its key interest rates by 25 basis points this month, effective September 16:

• Deposit facility rate: 2.50%
• Main refinancing rate: 2.65%
• Marginal lending rate: 2.90%

Markets expect the ECB to raise rates again, possibly as early as October.