European stock markets lost ground mid-morning as worries about a wider conflict in the Middle East knocked investor confidence. Talks between the United States and Iran showed little progress, and traders reacted fast.

How markets moved

Key moves in the morning trading session:

  • Frankfurt down 1.6%
  • Milan and London down 1.1%
  • Paris down 1.0%
  • New York futures were down by almost 1%

Energy prices surged: Brent rose 3.8% to $106.1 a barrel, while WTI climbed 3.5% to $93.5. Bond markets also felt the heat, with Italian BTP yields jumping 11 basis points to about 3.94% and the spread versus the German bund widening to 92 basis points.

What the OECD warns

The OECD, in its Interim Economic Outlook presented in Paris, said that if the conflict continues it will weigh on global growth and push inflation higher. The report highlights that higher energy prices and uncertainty around the conflict will raise costs, squeeze demand, and disrupt supply of key goods such as fertilizers.

Policy advice from the OECD

  • Target public support to those most in need to offset higher energy costs.
  • Maintain incentives where useful and reduce energy consumption.
  • Step up measures for national energy efficiency and cut reliance on imported fossil fuels to lower exposure to future geopolitical shocks.

Outlook for Italy and the euro area

The OECD trimmed its growth forecasts for Italy. New projections are:

  • Italy: GDP growth of 0.4% in 2026 (down 0.2 percentage points from December) and 0.6% in 2027 (down 0.1 points).
  • Italian inflation is expected to rise from 1.6% in 2025 to 2.4% in 2026, about 0.7 points higher than earlier estimates.
  • Eurozone: Growth is seen slowing from 1.4% in 2025 to 0.8% in 2026 because of higher energy prices, before picking up to 1.2% in 2027.

The OECD noted that Italy’s recovery will still get some support from the national recovery plan, but higher energy costs are hitting household consumption and forcing downward revisions.

Global picture

  • World GDP growth is forecast to slow to 2.9% in 2026 and then edge up to 3.0% in 2027. The OECD says this reflects higher energy costs and uncertainty related to the Middle East.
  • United States GDP is projected at 2.0% in 2026 and 1.7% in 2027, down from 2.1% in 2025. The OECD points to strong investment in AI but slower real income growth and consumption.
  • China is expected to slow slightly from 4.4% in 2026 to 4.3% in 2027.
  • G20 inflation is forecast to average 4.0% in 2026, up 1.2 points from December projections, before falling to 2.7% in 2027 as energy price pressures ease.

What central banks should watch

The OECD advises central banks to stay alert and keep inflation expectations anchored. If price pressures become broad based or growth prospects deteriorate significantly, monetary policy adjustments may be needed.

In short: markets are reacting to a risk that looks avoidable but unresolved. Energy prices and regional instability are driving fast-moving shifts across stocks, bonds, and national growth forecasts. Policymakers are being asked to shield the most vulnerable while pushing longer-term steps to cut dependence on imported fossil fuels.