Global economic growth is holding up better than expected in the face of high energy prices, but a lengthy conflict in the Middle East in combination with other headwinds could yet take a big toll on activity around the world, the Organization for Economic Cooperation and Development said Wednesday.

In a quarterly report on the global outlook, the Paris-based research body said global output is likely to grow at a faster pace than it forecast in June, even though oil prices have stayed high for longer than it had anticipated and inflation rates will therefore be more elevated.

Those high prices will have an impact on growth in 2027, which is now set to be slightly weaker than previously forecast. Should energy stay high through next year, and the El Nino weather pattern hit harvests, growth would likely be significantly weaker, while central banks would respond to higher inflation with bigger rate moves.

The OECD now expects global output to increase by 2.9% in 2026, having forecast an expansion of 2.8% in June. That earlier forecast assumed an earlier end to the U.S.-Iran conflict, and therefore lower energy prices than have transpired. Consumer-price inflation across the Group of 20 largest economies is expected to average 4.1% this year, up from 4% previously.

"We are facing a prolonged disruption, and yet the economy has performed better," said Stefano Scarpetta, the OECD's chief economist.

The AI-driven investment boom in the U.S. and some other economies has been one support for global growth, boosting in particular those countries that manufacture semiconductors and other electronic products that are required to build and operate data centers.

The contrast between those economies suffering direct harm from the war, and those enjoying a boost from AI, is marked. The OECD now expects Saudi Arabia's economy to shrink by 1.8% this year, having expected it to grow by 3.2% in June. But it now sees the economy of South Korea-a major exporter of electronic equipment-expanding by 3.7%, having previously forecast growth of 2.6%.

The AI boom is also behind upward revisions to the forecasts for U.S. growth, which is now seen at 2.2% this year and 2.1% in 2027. In June, the OECD expected to see expansions of 2% and then 1.8%.

The research body also raised its 2026 growth forecasts for the eurozone and Japan, although it trimmed its projections for 2027. Within the eurozone, the OECD forecast a divergence between France and Germany. The former is now expected to grow by just 0.4% this year, which would make it the weakest of the Group of Seven advanced economies. The latter is now expected to grow by 1.1%. In June, both were projected to grow by 0.7%.

The OECD left its 2026 growth forecast for China at 4.5%, but sees a slightly sharper slowdown in 2027. It raised its 2026 forecast for India to 7.1% from 6.3%, another reflection of the smaller-than-expected impact of higher energy prices.

With inflation set to be higher than previously forecast in 2027 as a result of the lengthening conflict in the Middle East, the OECD expects central banks to raise their key interest rates further. However, since there are few signs that the surge in energy costs is leading to higher prices in other parts of the economy, or a pickup in wages, those rate rises are expected to be modest.

Scarpetta said that absence of second-round effects reflected a more prompt response from central bankers than was the case in the postpandemic price surge.

"Central banks have reacted more swiftly," he said. "There has been a reaction in anticipation of second-round effects."

In the U.S., the OECD expects inflation excluding prices of energy and food to average 2.5% next year, down from 3.3% this year. It expects the Federal Reserve to raise its key rate by a quarter of a percentage point before the end of this year, and to remain on hold throughout 2027. It sees a similar path for the European Central Bank, while the Bank of Japan is expected to continue to tighten in 2027, with its key rate at 2% by the end of the year. The Bank of England is expected to be on hold until the second half of next year, and then cut its key rate.

Despite the resilience it has shown, the OECD warned the global economy could grow by as little as 2.3% next year should persistently high oil prices combine with higher food prices as a result of the El Nino weather pattern, and a decline in equity prices accompanied by a further rise in bond yields.

Prices of government bonds have fallen over recent weeks, partly driven by changes in inflation expectations as the war drags on. The OECD has long urged governments to take action to contain rising debts, and Scarpetta said the recent rise in yields carries a clear message from investors.

"There is a signal being sent about the sustainability of the public finances," he said. "Governments are facing difficult choices."