Fitch says Iran war fallout is weakening Europe’s credit outlook

Fitch Ratings said on Monday that macroeconomic conditions across developed Europe will remain impaired by spillovers from the US-Iran war, even if the Strait of Hormuz reopens swiftly, warning that the fallout could begin to affect credit ratings across the region.fitchratings+1

Weakened Baseline for 2026–2027

In a report published July 28, the rating agency said its baseline assumptions for macroeconomic conditions covering 2026 and 2027 had deteriorated over the first half of 2026, largely because of the energy price shock triggered by the US-Iran conflict in the second quarter. Fitch now expects inflation in most developed European countries to be higher, and economic growth slower, than it had projected at the end of 2025.hellenicshippingnews+1

The agency's base case assumes a gradual reopening of the Strait of Hormuz over the third quarter of 2026, but it cautioned that recent clashes between the US and Iran "highlight the danger of more protracted disruption". According to Fitch's June Global Economic Outlook, global growth in 2026 was lowered by 0.2 percentage points to 2.4 percent, primarily in response to higher oil prices. Consensus full-year 2026 GDP growth expectations for Europe have been pared back to 0.8 percent from 1.2 percent earlier in the year, according to RBC Wealth Management.rbcwealthmanagement+2

Credit Outlooks Deteriorate

In its mid-year update of European sector and asset performance outlooks, Fitch reported that 13 outlooks had weakened since the end of 2025. The outlook for western European sovereigns shifted to "deteriorating" from "neutral," a change Fitch had flagged in its June sovereign mid-year outlook. The proportion of issuers on Positive Outlook shrank again in the second quarter, though actual rating downgrades have not yet picked up markedly — a dynamic the agency attributed to the "relatively temporary nature of the energy shock" under its baseline and the role of existing rating buffers.fitchratings+2

Broader Geopolitical Pressures

Beyond the Iran conflict, Fitch noted that European issuers face ongoing geopolitical risks. Security concerns linked to Russia remain an important rating factor for some eastern European sovereigns, while perceptions of a heightened Russian threat and pressure from the United States are driving up European defence spending, weighing on fiscal deficit and public debt projections across the continent.hellenicshippingnews