Fitch Warns Rising Crude Oil Prices Could Impact Global Economic Growth

Fitch Ratings has issued a stark warning by predicting that higher-than-expected oil prices, in view of the potential disruptions in oil supply due to an escalation of the Middle East conflict, could considerably impact global economic growth and result in a surge in inflation.

According to Fitch's Global Economic Outlook (GEO), a scenario with average oil prices of USD 75 per barrel in 2024 and USD 70 per barrel in 2025 could be upended if oil prices rise to USD 120 per barrel in 2024 and USD 100 per barrel in 2025 on account of supply issues, reported ANI.

The global GDP growth is estimated to be 0.4 percentage points lower in 2024, with a more modest 0.1 percentage point decline in 2025. The US-based rating agency said that the absence of a significant recovery indicates a potentially persistent moderate impact beyond the initial shock.

Fitch carried out a simulation using the Oxford Economics Global Economic Model to examine the potential impact of higher oil prices resulting from a disruption in the Middle East conflict. In this scenario, which assumes supply restrictions, the simulation considers oil prices averaging $120 a barrel (bbl) in 2024 and $100 in 2025.

Fitch said, "Higher oil prices would dampen GDP growth in almost all the GEO's 'Fitch 20' economies, although the impact would largely dissipate in 2025. The absence of a significant growth rebound in 2025 implies a longer-lasting, if generally moderate, impact on the GDP levels in most countries, which could affect assessments of potential growth."

The adverse growth impact of the rise in oil prices will not be the same across all the countries. It ranges from 0.1 percentage points in Indonesia to 0.9 percentage points in Korea. The US, the Eurozone, and Japan experience impacts of 0.5 percentage points.

Among the major emerging economies, the most substantial impacts would be seen in South Africa and Turkey, each experiencing a 0.7 percentage point reduction. On the other hand, Russia due to the significant role of oil production in the country, the report said.

The aggregate impact on the Fitch 20 indicates a global GDP growth shortfall of 0.4 pp in 2024 and 0.1 pp in 2025.

Moreover, higher oil prices would lead to a rise in inflation rates in 2024, with India, Turkey, and Poland witnessing the highest percentage point rises.