The U.S.-Iran war has already dimmed the forecast for the global economy and intensified inflation concerns. Now, that negative turn is impacting the outlook for global sovereigns and parts of the financial sector, according to Fitch Ratings.
Citing the economic fallout from the conflict, the rating agency downgraded its 2026 outlook for the global sovereign sector outlook to “deteriorating” from “neutral.”
“We expect the conflict will weaken GDP growth, raise inflation and bond yields, and heighten geopolitical risks,” it said in a research note.
The weakening economic picture, and rising inflationary pressures, is also adding to strains on public finances in developed markets, it said.
Against that backdrop, Fitch also revised five regional outlooks to “deteriorating” to reflect spillovers from the conflict. The only exception is China, whose outlook was improved to “neutral” based on strong exports, and apparent end of deflationary conditions in that market.
Additionally, China’s inventories of crude oil, domestic refining capacity and diversified energy sources, are cushioning it from the negative impact of the energy shock.
At the same time, Fitch said that the rating outlook for global non-bank financial institutions has also shifted to the downside due to the weaker economic picture, and the prospect of tighter monetary policy due to rising inflation risks.
As a result, at mid-year, six of 12 sectors are now listed as “deteriorating,” up from two sectors at the start of the year, which Fitch said reflects “a more cautionary stance.”
Several banking sector outlooks have also been revised down — including the U.K., Germany and the Middle East — due to the negative economic impact of the conflict.
“However, the majority of sectors are still resilient to geopolitical risks, and most outlooks remain ‘neutral’,” the rating agency noted.
Additionally, the outlook for the global insurance sector remains at “neutral,” Fitch said, “reflecting generally resilient business conditions across most markets … despite mounting pressure due to the U.S.–Iran war from weaker economic growth, higher inflation and rising government bond yields.”