Schroders cuts 2026 global growth forecast as war fallout deepens

Middle East War Drags Global Growth as Forecasters Cut Outlooks

The economic fallout from the U.S.-Iran conflict that began in late February is now cascading through the global economy, prompting a wave of downgrades from major forecasters as elevated energy prices fuel inflation and erode growth prospects worldwide.

Forecasters Slash Projections

Fitch Ratings cut its 2026 global growth forecast by 0.2 percentage points to 2.4% in a report published in early June, warning that “forecast cuts have been widespread as higher inflation squeezes real wages, dampens consumption and raises companies’ input costs.” The agency also lowered U.S. growth expectations by 0.3 percentage points to 1.9% and eurozone projections by 0.4 percentage points to 0.9%.morningstar

Schroders followed days later, revising its full-year global GDP growth forecast to 2.5% from 2.9%. David Rees, the firm’s head of global economics, said optimism at the start of 2026 was “quickly” undone by the escalation of tensions in the Middle East, which triggered an inflation shock. The OECD presented two scenarios in its latest outlook: growth of 2.8% if the conflict returns to pre-war levels by mid-2026, or just 2.1% if hostilities persist.aastocks

A new working paper from the Peterson Institute for International Economics, published June 7, warned that the war could leave 2026 GDP lower and inflation higher across most economies, with effects “spread unevenly” and emerging markets hit hardest due to their dependence on Middle Eastern energy and fertilizers.piie

Emerging Markets Bear the Brunt

The damage is concentrated in the Middle East itself. The IMF slashed its MENA growth forecast to 1.1% for 2026 — a reduction of 2.8 percentage points from January — with five of eight oil-exporting countries in the region expected to contract this year. Qatar faces the steepest decline, with its forecast cut by 14.7 percentage points to a contraction of 8.6%, while Iraq and Iran are projected to shrink by 6.8% and 6.1%, respectively.usnews

The World Bank projects overall MENA growth, excluding Iran, at just 1.8% this year — down 2.4 percentage points from its January estimate — as the closure of the Strait of Hormuz and destruction of energy infrastructure disrupt markets.worldbank

Oil Price Shock Ripples Outward

GlobalData estimates that every sustained $10-per-barrel increase in crude oil prices shaves 0.1 to 0.5 percentage points off annual GDP growth in major energy-importing economies. The European Central Bank warned that the conflict will cost the eurozone 0.3 percentage points of GDP by year-end, with inflation projected to spike to 3.1% in the second quarter.eunews

The PIIE paper noted that the U.S. economy, while among the least affected overall, still faces GDP roughly 1.2% lower than baseline, with transportation, agriculture, and durable manufacturing bearing the heaviest burden.piie