The effects of higher oil prices and declining equity markets would be the main drivers of the negative global economic impact from an adverse scenario in which the Iran conflict continued until end-1H26, Fitch Ratings says. Our cross-sector analysis shows that global real GDP would be about 0.8% lower after four quarters compared to our base case published in the March Global Economic Outlook (GEO).

We estimated the adverse scenario’s macroeconomic impact using the Oxford Economics Global Economic Model. Higher oil prices would hit economic growth hardest in Korea, Japan and the US, while falling equity prices would have the strongest effect in Canada, Korea and the US. Wealth effects from lower share prices account for roughly half of the downward impact on US GDP under this scenario. Several emerging markets would also experience slower growth due to higher emerging-market bond index spreads.

In the March GEO, we forecast real GDP growth of 2.2% in the US, 4.3% in China, and 1.3% in the eurozone for 2026, with world growth forecast at 2.6%. Under the adverse scenario, growth in the US this year would be 1.5%, while in China it would be below 4%, and in the eurozone below 1%.

The modelling shows that the maximum impact from the adverse scenario occurs four quarters after the shock, when effects are even starker than the weaker annual average growth performance suggests. In 4Q26, US real GDP growth would be just 0.6% year on year in the adverse scenario compared with 1.8% in the GEO. Eurozone growth would also be 0.6% year on year in 4Q26, compared with 1.5%, while world growth would be 1.7% compared with 2.5%.

In the adverse scenario, inflation among the ‘Fitch 20’ economies would be 1.3pp higher after four quarters than under the GEO. India, Poland and Turkiye would all see inflation increasing by more than 2pp. However, our estimates of the scenario’s impact on inflation do not account for any fiscal policy measures that governments may implement to cap or otherwise limit energy price increases, which could dampen the scenario’s inflationary effect.

We do not think that monetary policy in the US, EU or UK would tighten significantly under the adverse scenario. This partly reflects a different inflationary situation than the energy price surge in 2022, which occurred against a backdrop of labour shortages, supply-chain disruption and massive fiscal stimulus.