The cross-sector analysis by the American credit rating agency shows that global real GDP would be approximately 0.8% lower after four quarters compared to its baseline scenario published in the March Global Economic Outlook (GEO).

"We estimated the macroeconomic impact of this downside scenario using Oxford Economics' Global Economic Model. Higher oil prices would weigh most heavily on economic growth in Korea, Japan, and the United States, while the decline in equity markets would have the most pronounced effect in Canada, Korea, and the United States. Wealth effects related to falling stock prices would account for about half of the negative impact on US GDP in this scenario. Several emerging markets would also see a slowdown in growth due to the widening of emerging market bond index spreads," Fitch Ratings noted.

In the March GEO, the rating agency forecasts real GDP growth of 2.2% in the United States, 4.3% in China, and 1.3% in the Eurozone for 2026, with global growth expected at 2.6%. In the downside scenario, US growth this year would be 1.5%, while it would fall below 4% in China and below 1% in the Eurozone.

Modeling shows that the peak impact of the downside scenario occurs four quarters after the shock, when the effects are even more marked than the weakness in average annual growth suggests. By the fourth quarter of 2026, US real GDP growth would be just 0.6% year-on-year in the downside scenario, compared to 1.8% in the GEO. Growth in the Eurozone would also be 0.6% year-on-year in the fourth quarter of 2026, compared to 1.5%, while global growth would be 1.7% versus 2.5%.

In the downside scenario, inflation among the "Fitch 20" economies would be 1.3 percentage points higher after four quarters compared to the GEO. India, Poland, and Turkey would all see their inflation increase by more than 2 percentage points.

"However, our estimates of the impact of this scenario on inflation do not account for potential fiscal policy measures that governments might implement to cap or otherwise limit the rise in energy prices, which could mitigate the inflationary effect of the scenario," Fitch Ratings stated.

"We do not believe that monetary policy in the United States, the European Union, or the United Kingdom would tighten significantly in this downside scenario. This partly reflects an inflationary situation different from the 2022 energy price surge, which occurred against a backdrop of labor shortages, supply chain disruptions, and massive fiscal stimulus measures," the rating agency signaled.