OECD Warns Middle East Conflict Poses Stagflation Risk, Leaves Central Banks in Policy Bind on May 19

According to OECD Secretary-General Matthias Cormann, escalating Middle East conflicts pose a "double hit" to the global economy on May 19—slowing growth while pushing inflation higher. This dynamic puts central banks in a difficult position, potentially forcing them to maintain tight monetary policy even as economic growth weakens, if second-round inflation effects like wage increases materialize.

The OECD previously flagged these risks in its March mid-year economic assessment and plans to update its global economic outlook on June 3. Energy price shocks and inflation concerns have become central to recent G7 finance and central bank meetings, which initially focused on structural issues like U.S. fiscal deficits.