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 artificial intelligence (AI)-related investment, supporting world trade and Asian exports, it noted.
World growth prospects have been hurt by the oil crisis triggered by the Middle East conflict, Fitch Ratings said.
It lowered its 2026 forecast for global growth by 0.2 pp to 2.4 per cent.
Forecast cuts have been widespread as higher inflation squeezes real wages, dampens consumption and raises companies’ input costs.
Growth in emerging markets excluding China has been lowered by 0.2 pp to 3.2 per cent.
It has lowered 2026 growth forecasts since the March GEO in the United States and eurozone by 0.3 pp and 0.4 pp respectively to 1.9 per cent to 0.9 per cent.
Growth in emerging markets excluding China has been lowered by 0.2 pp to 3.2 per cent, but China’s forecast has been raised by 0.3 pp to 4.6 per cent following surprisingly good data in the first quarter this year and remarkable resilience in exports.
It has also raised South Korea’s forecast as export prospects benefit from the boom in global technology spending.
The closure of the Strait of Hormuz has now lasted 14 weeks and Fitch Ratings assumes it will not start to reopen until July. It has revised its 2026 average price assumption for Brent crude to $87 a barrel (bbl) from $70/bbl in the March GEO.
In an adverse scenario where oil prices average $100/bbl in 2026, equity prices fall by 10 per cent and credit conditions tighten, growth in the United States could fall to just 0.8 per cent over the next 12 months, i.e. till Q1 2027, to 0.3 per cent in the eurozone and 3.4 per cent in China.
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 said.
The credit rating agency now expects the US Federal Reserve and the Bank of England to hold rates this year but to resume cuts in 2027. The European Central Bank will raise rates by 25 basis points in June, but Fitch expects that to be reversed next year.
Fibre2Fashion News Desk (DS)
