Fitch Ratings has issued a warning that the oil shock stemming from US-Iran tensions is damaging the global economic outlook. The agency has lowered its 2026 global growth forecast by 0.2 percentage points to 2.4%, citing inflationary pressures from rising energy costs and persistent supply disruptions.
Fitch economists stated in a report, "The downward revision is widespread, as higher inflation squeezes real wages, dampens consumption, and increases business input costs."
Revised Oil Price Outlook: Prolonged Strait of Hormuz Closure
Fitch has significantly raised its average Brent crude price forecast for 2026 from $70 to $87 per barrel, a 24% increase, to reflect the impact of a prolonged closure of the Strait of Hormuz, a critical global oil transit route. The Strait has now been closed for 14 consecutive weeks, marking the longest shipping disruption in the region since the Iran-Iraq War.
The Strait of Hormuz is the world's most crucial oil chokepoint, with approximately 20% of global oil consumption passing through it daily. Its closure directly pushes up global energy prices as alternative routes have limited and costly capacity. Fitch notes that current oil prices already embed a "geopolitical risk premium" of about $15-$20 per barrel, which did not exist prior to the conflict.
Fitch indicates that despite a fragile US-Iran ceasefire agreement, negotiations remain difficult, and a reopening of the Strait before July seems unlikely. Iran insists on the unfreezing of its overseas funds early in talks, while the US demands Iran take substantive action first on nuclear issues and Strait access. Core disagreements are hard to bridge in the short term, meaning tight energy market supply conditions are likely to persist at least into the third quarter.
However, the agency points out that the severity of its baseline scenario remains far less than the oil crises of the 1970s. During the 1973 Arab oil embargo and the 1979 Iranian Revolution, real oil prices spiked to levels equivalent to about $170 per barrel in today's inflation-adjusted terms. In comparison, the current $87 forecast remains within a manageable range.
Fitch also emphasizes that the share of oil consumption in global economic output has roughly halved since 1980—from around 7% then to about 3.5% now. This means the global economy's sensitivity to an oil shock has decreased significantly; the same oil price increase now drags on GDP far less than it would have four decades ago. This is a core reason Fitch believes this crisis will not replay the 'stagflation' scenario of the 1970s.
Scenario Analysis: Impact of Oil at $100
In a more adverse scenario, Fitch models the impact of average oil prices reaching $100 per barrel, a 10% stock market decline, and tighter credit conditions. Under this scenario, US economic growth could slow to just 0.8% over the next 12 months, with growth in the Eurozone and a major Asian economy potentially slowing to 0.3% and 3.4%, respectively.
In its baseline forecast, Fitch expects US growth of 1.9% and Eurozone growth of 0.9%, both below prior forecasts. However, due to stronger-than-expected first-quarter economic performance and resilient exports, the growth forecast for China has been upgraded to 4.6%.
Policy Outlook: Major Central Banks on Hold
Fitch notes in its report that the current global macro policy environment is starkly different from when inflation first surged in 2021, providing room for central banks to remain on hold.
First, policy rates are currently much higher than in 2021. For example, the US Federal Reserve's target range for the federal funds rate is maintained at 3.50%-3.75%, compared to near-zero at the start of 2021. This means central banks do not need to raise rates urgently as they did two years ago, as much of the tightening cycle's work is already done.
Second, labor markets are loosening. Job vacancy rates have retreated from peaks, the quits rate has fallen to its lowest since the pandemic, and business hiring has slowed. Wage pressures have subsequently eased, with average hourly earnings growth slowing from over 5% in 2022 to around 3.5% currently. Labor markets no longer provide additional inflationary impetus.
Third, fiscal policy is significantly less expansionary. The large-scale post-pandemic fiscal stimulus of 2021 has long ended. While the US federal deficit remains elevated, the marginal demand boost from new fiscal spending has decreased substantially. Fitch states that fiscal policy is no longer "pushing against" monetary policy as it was in 2021, reducing pressure on central banks to tighten.
Based on this assessment, Fitch expects the US Federal Reserve and the Bank of England to keep rates unchanged this year, then resume cutting in 2027. The agency believes inflation will gradually recede, albeit slower than previously expected, providing major central banks with sufficient room to cut by early 2027.
Fitch anticipates the European Central Bank may hike rates by 25 basis points in June to counter inflation pressures from the energy shock. However, with Eurozone growth already slowed to 0.1%, much weaker than the US, the ECB will be forced to reverse course next year, turning to rate cuts to support the economy.
Mitigating Factor: AI Investment Boom Supports Asian Economies
A key factor helping offset the drag from US-Iran tensions is a surge in AI activity, particularly in Asia. This wave of technological investment, driven by generative AI, is unexpectedly providing a cushion for the global economy.
Brian Coulton, Chief Economist at Fitch, stated the world is in "a very pronounced boom in global IT spending, which is cushioning the impact on economic activity in the near term, particularly in Asia." He noted that major tech companies are investing heavily in building AI data centers, procuring high-performance chips, and deploying computing infrastructure. Capital expenditure on AI-related equipment by major tech firms this year has already exceeded $700 billion, a scale unimaginable in past years.
AI-related construction is fueling sustained strong demand for chips and related products, providing a favorable boost for tech-exporting economies like South Korea. South Korea's memory chip exports have maintained double-digit growth for several months. Export data, manufacturing PMIs, and stock market performance in these regions are notably better than other Asian economies reliant on traditional manufacturing.
Risk Warning: Growth Slowdown Could Halt AI Boom
While the AI investment boom is driving record stock market gains, boosting corporate profits, and supporting the broader economy, Fitch warns this momentum could halt abruptly if global economic growth slows substantially.
The surge in AI-related spending is inherently a "pro-cyclical" force—companies are willing to invest heavily when the economy is strong, but capital expenditure is often among the first items cut when growth prospects deteriorate. Chief Economist Coulton points out that the current high level of AI construction activity largely depends on corporate optimism about future demand, which is itself fragile.
If US-Iran tensions escalate further, pushing oil above $100, or global trade slows significantly due to supply chain disruptions, companies may quickly reassess their capital expenditure plans. The AI investment boom, seen as a "growth engine," could then cool rapidly, amplifying economic downturn pressures.
Furthermore, Fitch reminds investors of "expectation gap" risks. Current market expectations for profit growth at AI-related firms are extremely high, with stock prices incorporating substantial optimistic assumptions. Should macroeconomic signals weaken, these high-valuation stocks could face a double blow: actual corporate profits potentially falling short, coupled with valuation contraction from a reversal in market sentiment.
In other words, the AI boom acts as both a current "cushion" for the economy and a potential future "amplifier" of a downturn. While investors chase tech stock rallies, they must also remain vigilant about the global growth outlook.
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