Below 1% will be, according to Fitch Ratings, the growth of the Eurozone in 2026 based on an adverse scenario in which the conflict in Iran would continue until the end of the first half of 2026, compared to the 1.3% growth expected by the House in its base scenario published in its March “Global Economic Outlook (GEO)” report.
In its analysis of the macroeconomic effects of the war, the US House says that the effects of higher oil prices and falling stock markets would be the main factors leading to a negative impact on the global economy in the adverse scenario considered by the House, in which the conflict in Iran would continue until the end of the first half of 2026.
Fitch Ratings says its analysis shows global real GDP would be around 0.8% lower after four quarters, compared to its baseline scenario published in the March World Economic Outlook.
It adds that higher oil prices would hit economic growth more in Korea, Japan and the US, while falling stock prices would have the strongest effect in Canada, Korea and the US.
He notes that the effects of lower stock prices account for about 50% of the downward impact on US GDP under this scenario.
In its March forecast, the House expected real GDP growth of 2.2% in the US, 4.3% in China and 1.3% in the Eurozone for 2026, with global growth forecast at 2.6%.
According to the unfavorable scenario, growth in the US this year will be 1.5%, while in China it will be below 4% and in the Eurozone below 1%.
Fitch Ratings reports that modeling shows that the maximum impact from the adverse scenario occurs four quarters after the shock, when the effects are even more pronounced.
The House estimates that in the 4th quarter of 2026, US real GDP growth will be just 0.6% year-over-year in the adverse scenario, compared with 1.8% in the GEO forecast.
Besides, it estimates Eurozone growth will also be 0.6%, on an annual basis, in Q4 2026, compared to 1.5% in GEO, while global growth will be 1.7%, compared to 2.5% in GEO.
In addition, the US House estimates that monetary policy in the US, the EU or the UK will tighten significantly in the adverse scenario.
This reflects, in part, a different inflation situation than the energy price spike in 2022, which occurred against a backdrop of labor shortages, supply chain disruptions and massive fiscal stimulus.
Geopolitical risks cast a shadow over the macroeconomic outlook
Geopolitical risks are overshadowing Europe’s macroeconomic outlook, which has started the year quite positively, warns Standard and Poor’s (S&P) Global Ratings, which downgrades its forecast for Eurozone growth in 2026 to 1% and upgraded its inflation forecast to 2.4%.
The war in the Middle East, and particularly the disruption in the Straits of Hormuz, is affecting supply chains and has caused shocks to energy supplies, he adds.
S&P says supply chain disruptions could raise inflation, tighten credit conditions and hurt corporate profits, particularly for energy-intensive industries.
In its baseline scenario, S&P says the outlook for Europe over the next 12 months shows a slight deterioration, reflecting downside credit risks.
As a result, the US House downgraded its forecast for Eurozone growth in 2026 to 1% and upgraded its forecast for inflation to 2.4%.
“We forecast GDP growth of 1% in both the Eurozone and the UK this year, compared to 1.2% and 1.4%, respectively, in our previous forecast,” he adds.
Looking at inflation in 2026, S&P now expects Eurozone inflation to be around 2.4%, 0.6 percentage points above its previous forecast.
It says the exception is the UK, where it remains almost unchanged at 2.4%, as the energy bill passed in November’s budget will cap price rises until the end of this year.
It notes that Europe’s macro-credit environment in 2026 was characterized by resilience amid uncertainty, and low interest rates, strong economic growth and ample liquidity provided a supportive backdrop for borrowers.
However, it says that if geopolitical conflicts widen or continue, or if trade disputes intensify, Europe’s credit conditions could turn from favorable to more difficult.
In relation to its non-baseline scenario, the house says that a prolonged closure of the Strait of Hormuz until April 2026 would threaten critical supplies of oil, liquefied natural gas (LNG), fertilizers and other sea-borne commodities, leading to a non-linear increase in global spot prices.
“Although not our baseline scenario, this could lead to Brent oil prices peaking at around $200/bbl in April, averaging $185/bbl in the second quarter, and then falling to $100/bbl at the end of the year,” he adds.
It says that a prolonged energy price shock would worsen already high gas and electricity prices in Europe, jeopardize the outlook for inflation due to indirect and spillover effects, harm competitiveness and suppress economic activity more generally.
Basic risks
According to S&P, an escalation of the war in the Middle East could increase inflation and further weaken growth.
Under an alternative scenario being worked out by S&P Global Energy, where Brent oil prices peak at $200/barrel in the spring before gradually falling to around $98/barrel by 2027, inflation in 2026 would exceed the house’s baseline scenario by around 1 percentage point in the Eurozone and 0.6 percentage point in the UK.
It says that without taking into account any additional fiscal response, this would reduce 2026 GDP growth relative to the baseline scenario by around 0.5 percentage point in the Eurozone and by around 0.3 percentage point in the UK.
Under this scenario, which is not the House’s baseline scenario, both the ECB and the Bank of England would raise interest rates by a further 25 basis points in 2026.
Source: KYPE