Fitch cuts global growth forecast to 2.4%

Fitch Ratings has cut its 2026 global growth forecast by 0.2 percentage points to 2.4%, citing the oil price shock triggered by the US-Iran war and the resulting closure of the Strait of Hormuz, now in its 14th week. In its latest Global Economic Outlook, Fitch lowered its 2026 growth projections for the US and eurozone by 0.3pp and 0.4pp to 1.9% and 0.9%, respectively, while emerging markets excluding China were trimmed 0.2pp to 3.2%. China was the exception, with its forecast raised 0.3pp to 4.6% following stronger-than-expected first-quarter data and resilient exports. Korea's outlook was also upgraded on the back of booming global technology spending. The ratings agency revised its 2026 average Brent crude price assumption to $87 per barrel from $70/bbl in its March outlook. It also modelled an adverse scenario in which oil averages $100/bbl and equity prices fall 10%, which could drag US growth down to 0.8% over the next 12 months, with the eurozone slowing to 0.3% and China to 3.4%. Higher oil prices are squeezing real wages, dampening consumption, and raising input costs for businesses. However, Fitch said the damage to global activity is being partly offset by a pronounced boom in AI-related IT investment. US IT investment grew 18% year-on-year in the first quarter, global semiconductor sales rose 80% year-on-year in March, and US capital goods imports jumped nearly 30%. On monetary policy, Fitch now expects the US Federal Reserve and the Bank of England to hold rates through 2026 and resume cuts in 2027. The European Central Bank is forecast to raise rates by 25 basis points in June before reversing the move next year. "The oil price shock is hitting world growth prospects and increasing downside risks. But we are also amid a very pronounced boom in global spending on IT and that is cushioning the impact on activity in the near term, particularly in Asia," said Brian Coulton, Fitch's Chief Economist.