Fitch Cuts Global Growth Outlook in Latest Downgrade to Capture Mideast Impact

By Fabiana Negrin Ochoa

The oil shock triggered by the U.S.-Iran conflict has damaged the global economy's prospects, Fitch Ratings warned, as it cut its growth forecasts and raised its outlook for crude prices for the year.

The ratings firm now expects the world economy to grow 2.4% this year, down 0.2 percentage points from its previous projection, citing the inflationary impact of higher energy costs and ongoing supply disruptions.

"Forecast cuts have been widespread as higher inflation squeezes real wages, dampens consumption and raises companies' input costs," Fitch economists said in a report.

The downgrade adds to a growing list of warnings from international organizations, including the OECD, as the conflict enters a fourth month and continues to disrupt supplies of energy and key commodities.

Fitch raised its average Brent crude forecast for 2026 to $87 a barrel from $70 previously, reflecting the prolonged closure of the Strait of Hormuz, a critical route for global oil shipments.

The closure has now lasted 14 weeks, and Fitch said a reopening appears unlikely before July as negotiations between the U.S. and Iran remain difficult despite a fragile ceasefire.

Still, it said its base case remains considerable less severe than the oil crises of the 1970s, when real oil prices spiked to $170 barrel, while oil consumption as a share of global economic output has roughly halved since 1980.

Under a more adverse scenario in which oil averages $100 barrel in 2026, equity prices fall by 10% and credit conditions tighten, growth in the U.S. could fall to just 0.8% over the next 12 months to 0.3% in the eurozone and 3.4% in China, it said.

In its baseline forecast, Fitch expects theU.S. economy to grow 1.9% and the eurozone economy 0.9%, both lower than previously projected. China's growth forecast, however, was raised to 4.6% after a stronger-than-expected first quarter and resilience in export performance.

"Policy rates are much higher than in 2021, labor market conditions and wage pressures are softer, and fiscal policy far less expansionary," Fitch said.

Fitch now expects the Federal Reserve and the Bank of England will hold rates this year before resuming cuts in 2027. The European Central Bank is likely to hike in June but then reverse that next year, it said.

One factor helping offset the drag from the conflict is the surge in artificial-intelligence activity, especially in Asia.

The world is in the midst of "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 at Fitch.

The AI buildout has fueled relentless appetite for chips and related products, providing a tailwind for tech-exporting economies like Taiwan and South Korea.

But while that is driving record gains in equities markets, bolstering corporate profits and buoying the broader economy, Fitch warned that a material slowdown in global growth could stop the momentum in its tracks.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

June 05, 2026 00:49 ET (04:49 GMT)