Oil Crisis Hits World Growth Outlook, Forecasts Revised Down
World growth prospects have been hurt by the oil crisis prompted by the US-Iran war, Fitch Ratings says in its latest Global Economic Outlook (GEO). This has led Fitch to lower its 2026 forecast for global growth by 0.2 percentage points to 2.4%.
Forecast cuts have been widespread as higher inflation squeezes real wages, dampens consumption and raises companies’ input costs.
But the impact of the oil shock on global activity is being cushioned by stronger-than-expected momentum in AI-related IT investment, supporting world trade and Asian exports.
“We have lowered 2026 growth forecasts since the March GEO in the US and eurozone by 0.3pp and 0.4pp, respectively to 1.9% to 0.9%”, Fitch said.
Growth in emerging markets excluding China has been lowered by 0.2pp to 3.2% but China’s forecast has been raised by 0.3pp to 4.6% following surprisingly good data in 1Q26 and remarkable resilience in exports.
Fitch analysts have also raised Korea’s forecast as export prospects benefit from the boom in global technology spending.
“The oil price shock is hitting world growth prospects and increasing downside risks. But we are also amid a very pronounced boom in global spending on IT and that is cushioning the impact on activity in the near term, particularly in Asia,” said Brian Coulton, Chief Economist.
The closure of the Strait of Hormuz has now lasted 14 weeks and Fitch assumes it will not start to reopen until July. “We have revised our 2026 average price assumption for Brent crude to USD87 a barrel (bbl) from USD70/bbl in the March GEO”.
Fitch said the oil shock is a strong headwind to world growth, but our base case is far less severe than the pernicious oil shocks of the 1970s.
Real oil prices reached USD170/bbl in 1979 (measured in current prices) and OPEC played a very different role then. Oil consumption as a share of world GDP has halved since 1980.
Nevertheless, with geopolitical uncertainties remaining high, we also examined an adverse scenario where oil prices average USD100/bbl in 2026, equity prices fall by 10% and credit conditions tighten.
Growth in the US could fall to just 0.8% over the next 12 months in this scenario, to 0.3% in the eurozone and 3.4% in China, Fitch said.
US IT investment grew by 18% yoy in 1Q26 and there is evidence of rapid IT investment growth elsewhere. Global semi-conductor sales values rose 80% yoy in March as the tech boom boosts global trade.
Fitch also noted that US capital goods imports jumped nearly 30%. It said surging semi-conductor exports contributed to strong 1Q26 GDP prints in Korea and Taiwan, and technology products have boosted trade in China.
Analysts said fiscal policy will also support US growth somewhat this year as the deficit widens relative to 2025. Fitch estimates that defence spending will add 0.8% to German GDP cumulatively over the next three years. The inflationary impact of the oil shock is shifting the outlook for global monetary policy.
With the memory of the post-pandemic inflation still recent, central banks have concerns that the price level shock could lead to more persistent impacts and are keen to demonstrate credibility and anchor expectations.
But policy rates are much higher than in 2021, labour market conditions and wage pressures are softer, and fiscal policy far less expansionary.
Fitch now expects the US Federal Reserve and the Bank of England to hold rates this year but to resume cuts in 2027. The ECB will raise rates by 25bp in June, but analysts expect that to be reversed next year.
