Middle East conflict fallout prompts Coface to cut global outlook

The Middle East conflict impact continues to weigh on the global economy despite a fragile easing of tensions between the United States and Iran, according to Coface. The credit insurer warned that disruptions already embedded in trade flows, supply chains, and energy markets will continue to affect growth, inflation, and corporate profitability in the months ahead.

Coface has downgraded eight country risk assessments and revised 45 sector evaluations, including 41 downgrades and only four upgrades. The company now expects global economic growth to reach 2.3% in 2026 and 2.5% in 2027, representing a cumulative downward revision of 0.6 percentage points over the two years. Brent crude oil is projected to average $85 per barrel in 2026.

The signing of a protocol agreement between the United States and Iran after more than fifteen weeks of conflict has reduced immediate geopolitical tensions in the Middle East. However, Coface said the duration and intensity of the confrontation exceeded initial expectations and caused significant disruption across one of the world’s most important economic regions.

The Strait of Hormuz remains a critical transit route for hydrocarbons and petroleum products. Countries in Southeast Asia and along Africa’s eastern coast were particularly exposed to supply disruptions. Coface noted that restoring normal trade conditions will take time, even if regional stability improves.

The global economy has so far absorbed much of the shock through existing inventories and adjustments in demand. However, those buffers are weakening. Production interruptions, rising inflationary pressures, and tighter financial conditions are becoming more visible. Governments also face limited fiscal room to support economic activity and household incomes.

Supply chains remain under pressure. Traffic through the Strait of Hormuz fell sharply, with only 145 vessels recorded in May compared with more than 3,300 during the same period a year earlier. The decline disrupted global transport networks and increased pressure on logistics operations worldwide.

Businesses are already reporting longer delivery times, higher transportation costs, and early signs of shortages. Many firms have responded by building precautionary inventories, a strategy that increases pressure on cash flow and profitability. As a result, corporate insolvencies are expected to rise by 6% globally this year, with stronger increases anticipated in countries including the United States, France, and Japan.

The effects vary across regions. Gulf economies face some of the most direct consequences because of their reliance on maritime trade routes linked to the Strait of Hormuz. In Europe, higher energy prices and prolonged uncertainty are expected to limit domestic demand, with Eurozone growth projected at only 0.7%.

In the United States, inflation accelerated from 2.4% in February to 4.2% in May, reducing purchasing power and weighing on lower income households. Across Asia, performance remains mixed. South Korea’s semiconductor exports have surged by 153% since the start of the year, while other industries are struggling with shrinking profit margins.

Emerging economies, particularly in Latin America, are experiencing renewed inflationary pressures and tighter monetary policies. Brazil’s benchmark interest rate has reached 14.5%, reflecting efforts to contain price increases.

Jean-Christophe Caffet, Chief Economist at Coface, said the easing of tensions in the Middle East is positive but does not eliminate the economic consequences already set in motion. He noted that the unprecedented number of sector downgrades across 19 countries illustrates the broad impact of a conflict whose effects on trade flows and business profitability are likely to persist.