Iran-USA conflict could cut global growth by 0.8%

March 27, 2026 (MLN): An extended Iran conflict lasting through the first half of 2026 would weigh heavily on the global economy, with higher oil prices and declining equity markets emerging as the key drivers of the downturn, according to Fitch Ratings.

Under this adverse scenario, global real GDP would be about 0.8% lower after one year compared to the baseline forecast in its March Global Economic Outlook.

The assessment by Fitch, indicates that rising oil prices would most severely affect growth in energy-importing economies such as Korea, Japan, and the United States.

At the same time, falling equity markets would have the greatest impact in Canada, Korea, and the US, where declining household wealth linked to stock market losses would account for roughly half of the GDP slowdown.

Fitch’s baseline projections had put global growth at 2.6% for 2026, including 2.2% for the US, 4.3% for China, and 1.3% for the eurozone. In the adverse scenario, however, US growth would slow to 1.5%, China’s expansion would dip below 4%, and the eurozone would fall below 1%.

The analysis shows that the most pronounced effects would materialize after four quarters.

By the fourth quarter of 2026, US real GDP growth would drop to 0.6% year-on-year, compared with 1.8% in the baseline outlook. Eurozone growth would similarly weaken to 0.6% from 1.5%, while global growth would slow to 1.7% instead of 2.5%.

Inflation would also rise, increasing by about 1.3 percentage points across Fitch’s 20 major economies. India, Poland, and Türkiye could see inflation climb by more than 2 percentage points, though the estimates do not account for potential government measures to limit energy price increases.

Despite the uptick in inflation, Fitch expects central banks in the US, EU, and UK to avoid significant monetary tightening, noting that current conditions differ from the 2022 energy shock, which was amplified by labor shortages, supply chain disruptions, and large-scale fiscal stimulus.

Copyright Mettis Link News