Global Growth Slows as Oil Crisis Deepens

Global economic growth is expected to slow further in 2026 as the oil crisis triggered by the US-Iran conflict continues to disrupt markets, according to the latest Global Economic Outlook released by Fitch Ratings.

Fitch lowered its forecast for global growth in 2026 by 0.2 percentage points to 2.4%, warning that higher oil prices are increasing inflationary pressures and weakening consumer demand across major economies.

The ratings agency said rising fuel costs are squeezing household incomes, reducing spending power and increasing operating costs for businesses around the world.

However, the report noted that the impact of the oil shock is being partly offset by strong global investment in artificial intelligence and information technology, which continues to support trade and exports, particularly in Asia.

Growth forecasts for several advanced economies were revised downward. Fitch cut its 2026 growth outlook for the United States by 0.3 percentage points to 1.9%, while the eurozone forecast was reduced by 0.4 percentage points to 0.9%.

Emerging markets excluding China were also downgraded to 3.2%. In contrast, China’s growth forecast was raised to 4.6% after stronger-than-expected economic data in the first quarter of 2026 and resilient export performance.

South Korea’s outlook was also improved as demand for technology products and semiconductor exports continues to rise.

Brian Coulton, Chief Economist at Fitch Ratings, said the oil price shock was damaging global growth prospects and increasing economic risks, but added that the rapid expansion of global IT spending was helping to cushion the impact, especially in Asian economies.

The report said the closure of the Strait of Hormuz has now lasted for 14 weeks and is not expected to begin reopening until July. Fitch revised its forecast for average Brent crude prices in 2026 to 87 US dollars per barrel, up from its previous estimate of 70 dollars.

Despite the sharp increase in energy prices, Fitch said the current situation is still less severe than the oil crises of the 1970s, when prices surged dramatically and oil played a much larger role in the global economy.

The agency also examined a more severe scenario in which oil prices average 100 dollars per barrel next year, stock markets fall by 10%, and lending conditions tighten.

Under that scenario, US economic growth could slow to 0.8% over the next year, while eurozone growth could fall to 0.3%. China’s economy would also weaken, with projected growth dropping to 3.4%.

Fitch highlighted the continued strength of the technology sector as a major support for the global economy. US IT investment rose by 18% year-on-year in the first quarter of 2026, while global semiconductor sales surged by 80% in March.

The report said strong semiconductor exports helped boost economic growth in South Korea and Taiwan, while technology-related products continued to strengthen Chinese trade figures.

Fiscal spending is also expected to provide limited support to growth in some economies. Fitch estimates that increased defence spending could add 0.8% cumulatively to Germany’s GDP over the next three years.

The agency warned that higher oil prices are complicating the outlook for global central banks, many of which remain cautious after the inflation surge that followed the Covid-19 pandemic.

Fitch now expects the US Federal Reserve and the Bank of England to keep interest rates unchanged this year before resuming rate cuts in 2027.

The European Central Bank is expected to raise interest rates by 25 basis points in June, although Fitch believes that increase could be reversed next year.