Fitch global economic outlook immediately worsens as Middle East missiles fly again
Monday, 8 June 2026
The oil crisis looks set to potentially get a lot worse as hostilities in the Middle East resume this morning, but even before this development, one global ratings agency was forecasting a drop in global growth because of the oil crisis those hostilities have sparked.
World growth prospects have been hurt by the US-Iran war, Fitch Ratings said in its latest Global Economic Outlook (GEO), and it meant the agency has lowered its 2026 forecast for global growth by 0.2 basis points to 2.4%.
“The oil price shock is hitting world growth prospects and increasing downside risks,” said Brian Coulton, Fitch chief economist.
“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.”
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However, last week markets started to reflect some scepticism about the level of AI investment happening, including the likes of Goldman Sachs, which cautioned that the ultimate commercial business cases and returns on massive AI infrastructure capex remain unproven.
Goldman Sachs Research’s Jim Covello said the economics of artificial intelligence were “more questionable today than two years ago”, as enterprise buyers, model companies and hyperscalers had yet to show returns on their spend.
On this and other scepticism, AI-related stocks suffered an aggressive market correction on Friday, prompting the worst single-day tech rout of the year and forcing the Nasdaq Composite down by 4.2%.
But the spending was still happening, and Fitch said a very pronounced boom in global infrastructure spending on information technology and artificial intelligence was actively insulating major Asian manufacturing hubs, directly supporting regional trade and export pipelines despite global energy headwinds.
This is a critical bit of good news for New Zealand. The Treasury noted in its recent economic briefings that China's early 2026 manufacturing rebound has directly mitigated broader global economic headwinds for Kiwi exporters.
China and South Korea were the only two regions to have its growth forecasts upgraded in the Fitch report - the former upgraded to 4.6% in 2026, and the latter upgraded to 2.0%, fuelled by a surge in AI-driven demand for high-bandwidth memory (HBM) and semiconductors, which constitute 24% of South Korea’s exports.
Global semi-conductor sales values rose 80% year-on-year in March, to almost US$300 billion.
For China, “growth is buoyed by surprisingly robust [first quarter] data and remarkable resilience in its tech and equipment export channels,” the report said.
Otherwise, Fitch’s growth forecasts for 2026 for the US and Europe have been lowered by 0.3pp and 0.4pp, 1.9% to 0.9% respectively.
Oil prices play a big role in the downbeat assessments. Fitch’s assessment was based on the Strait of Hormuz opening again in July - something that looks increasingly unlikely given hostilities have ramped up again this morning.
Fitch revised its 2026 average price assumption for Brent crude to US$87 a barrel in 2026 from US$70 in March, saying while it was elevated, “our base case is far less severe than the pernicious oil shocks of the 1970s”.
“Real oil prices reached US$170 a barrel in 1979 (measured in current prices) and OPEC played a very different role then. Oil consumption as a share of world GDP has halved since 1980.”
In the past week oil prices had eased somewhat, although remain far higher than where they were trading before the conflict began. Global benchmark Brent crude oil futures are trading about 36% above their pre-war price, for example.
Brent Crude is this morning trading at US$93.09 per barrel.
Fitch acknowledged geopolitical uncertainties remained high, and had examined an “adverse scenario” where oil prices averaged US$100/bbl in 2026, equity prices fell by 10% and credit conditions tightened: “Growth in the US could fall to just 0.8% over the next 12 months (i.e. through the year to [the first quarter of] 2027) in this scenario, to 0.3% in the eurozone and 3.4% in China”.
“The inflationary impact of the oil shock is shifting the outlook for global monetary policy. With the memory of the post-pandemic inflation still recent, central banks have concerns that the price level shock could lead to more persistent impacts and are keen to demonstrate credibility and anchor expectations.
“But policy rates are much higher than in 2021, labour market conditions and wage pressures are softer, and fiscal policy far less expansionary.
Fitch now expected the US Federal Reserve and the Bank of England to hold rates this year but to resume cuts in 2027.