Oil price volatility could test steady global growth

March 12, 2026 (MLN): Global economic expansion is projected to remain steady this year, provided the recent spike in oil prices does not persist, according to Fitch Ratings’ March 2026 Global Economic Outlook (GEO).

Despite a series of geopolitical tensions and policy shocks in the United States, the world economy demonstrated resilience, with growth reaching 2.7% in 2025, close to its long-term average.

Fitch now expects a modest slowdown in 2026, forecasting global growth at 2.6%, slightly higher than the 2.4% projected in last December’s report, assuming oil price increases are temporary.

Strong investment in artificial intelligence, large fiscal deficits in the US and China, and gains in US equity markets have helped cushion the impact of last year’s elevated US tariffs.

However, Fitch anticipates US consumer spending will moderate in 2026 as a weakening labor market weighs on household income.

US GDP is expected to grow 2.2%, unchanged from 2025, though slightly above the 2% previously forecasted in January.

In the eurozone, economic growth is projected at 1.3%, unchanged from December but marginally below last year’s level.

Higher energy costs pose a headwind, though Germany’s economic recovery is gaining traction thanks to fiscal easing.

Excluding Ireland, which has seen volatile growth, the eurozone’s expansion is expected to rise by 0.3 percentage points to 1.3%.

China is forecast to slow to 4.3% growth in 2026, down from 5% in 2025, as consumer spending and exports weaken. Capital investment, which declined last year for the first time since 1990, is expected to rebound mildly.

Fitch has raised China’s 2026 GDP forecast by 0.2 percentage points since December.

Fitch has also revised its 2026 oil price outlook upward, anticipating Brent crude will average $70 per barrel, up from $63, assuming a one-month closure of the Strait of Hormuz followed by a decline to the mid-$60s in the second half of the year.

While this revision has minimal impact on base-case economic forecasts, a scenario in which oil prices remain at $100 per barrel could trigger a major global supply shock, lowering world GDP by 0.4% within a year and pushing inflation up by 1.2–1.5 percentage points in the US and Europe.

US trade policy remains uncertain following the Supreme Court’s cancellation of IEEPA tariffs. Fitch notes that a temporary Section 122 tariff of 15% would leave the US Effective Tariff Rate near 11.3%, close to prior assumptions.

World trade grew in 2025 despite higher tariffs, partly due to the import-heavy nature of IT investment and the global concentration of semiconductor manufacturing.

In China, rising domestic savings and declining investment have driven private-sector net lending to a historic high of over 11% of GDP, highlighting the economy’s reliance on exports and fiscal stimulus and ongoing deflationary pressures.

Meanwhile, Germany’s domestic demand grew 0.8% in Q4 2025, the fastest pace since early 2022, and capital goods orders have surged. Japan shows signs of entering a sustained reflationary phase.

In the US, cooling wage growth and a softer labor market are likely to prompt the Federal Reserve to cut rates twice in 2026.

The Atlanta Fed Wage Growth Tracker fell to 3.6% in January, the lowest since June 2021. Weak hiring continues to pose employment risks, although declining labor supply may temper upward pressure on unemployment.

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