Prolonged Iran conflict could cut global GDP by 0.8%, Fitch says

A prolonged Iran conflict lasting through the first half of 2026 could significantly weaken global economic growth, with higher oil prices and falling equity markets acting as the main transmission channels, Fitch Ratings said.

In an adverse scenario modeled by the agency, global real GDP would be about 0.8% lower after four quarters compared with its baseline forecasts in the March Global Economic Outlook.

Oil, equities to drive slowdown

Fitch said higher oil prices would hit growth hardest in Korea, Japan and the United States, while declining equity markets would weigh most on Canada, Korea and the U.S.

“Wealth effects from lower share prices account for roughly half of the downward impact on U.S. GDP under this scenario,” the agency said.

Several emerging markets would also face slower growth due to widening bond spreads, reflecting tighter financial conditions.

Growth outlook weakens sharply

Under its base case, Fitch forecasts global growth of 2.6% in 2026, with the U.S. at 2.2%, China at 4.3% and the eurozone at 1.3%.

However, under the adverse scenario, U.S. growth would slow to 1.5%, China’s would fall below 4%, and eurozone growth would drop below 1%.

The impact would intensify over time. By the fourth quarter of 2026, U.S. growth would slow to 0.6% year-on-year compared with 1.8% in the baseline, while eurozone growth would also fall to 0.6% from 1.5%. Global growth would decline to 1.7% from 2.5%.

Inflation pressures rise

Fitch said inflation across the “Fitch 20” economies would be 1.3 percentage points higher after four quarters under the adverse scenario.

India, Poland and Turkiye would see inflation rise by more than 2 percentage points, although the estimates do not factor in potential government measures to limit energy price increases.

Despite higher inflation, Fitch said monetary policy in the U.S., European Union and United Kingdom is unlikely to tighten significantly, noting that current conditions differ from the 2022 energy shock, which was accompanied by labor shortages, supply-chain disruptions and large fiscal stimulus.