Citing the impact of the energy crisis touched off by the U.S.-Iran war, Fitch Ratings is cutting its forecast for the global economy and shifting its expectations for global monetary policy.
On Thursday, the rating agency reduced its global growth forecast by 0.2 percentage points to 2.4% for 2026, alongside revised forecasts for the U.S. and the eurozone, which were cut by 0.3 points and 0.4 points, respectively, to 1.9% and 0.9%.
For emerging markets, excluding China, the firm’s forecast was also reduced by 0.2 points to 3.2%.
“World growth prospects have been hurt by the oil crisis prompted by the U.S.-Iran war,” Fitch said, noting that the Strait of Hormuz has now been closed for 14 weeks, and the rating agency still expects that it will not start to reopen until July.
Against this backdrop, Fitch has increased its expectations for average crude oil prices in 2026 and it said that high oil prices represent a “strong headwind to world growth.”
Higher energy prices translate into stronger inflation, which reduces consumption and raises companies’ input costs, it noted.
In a gloomier scenario — where oil prices are even higher than currently expected, equity prices fall by 10% and credit conditions tighten — growth in the U.S. could slow to just 0.8% over the next 12 months, Fitch said, while Europe could slow to just 0.3% growth.
Yet, in the current environment, some of the negative impact of the oil shock is being cushioned by “stronger-than-expected momentum in AI-related IT investment, supporting world trade and Asian exports,” it said.
Indeed, the rating agency’s forecasts for China and Korea have both been raised due to the strength of exports, driven by the global boom in tech spending.
Fitch noted that U.S. IT investment grew by 18% year over year in the first quarter, “and there is evidence of rapid IT investment growth elsewhere,” including soaring global semiconductor sales, boosting Asian export values.
However, for the global economy overall, the impact of higher oil prices is currently outweighing the positive offset from tech investment, and that’s weighing on interest rate expectations too.
“The inflationary impact of the oil shock is [also] shifting the outlook for global monetary policy,” the rating agency said.
As a result, Fitch now expects the U.S. Federal Reserve and the Bank of England to hold rates steady this year, before resuming cuts in 2027.
The European Central Bank is expected to raise rates by 25 basis points this month, but Fitch expects that hike to be reversed next year.