📈 Global Economic Impact: Iran Conflict Adverse Scenario Analysis

Fitch Ratings has modeled a scenario where the Iran conflict persists through 1H26, driven by soaring oil prices and declining equity markets. For a fuel-importing economy like Sri Lanka, these global shifts signal significant inflationary pressure and external sector risks. • Macroeconomic Impact: Global real GDP is projected to be 0.8% lower than base case forecasts after four quarters. World growth for 2026 would drop to 1.7% (compared to the 2.5% base case), potentially slowing demand for Sri Lankan exports like tea and apparel & textiles. • Sector & Market Drivers: Higher oil prices would hit major trading partners like the US, Japan, and South Korea hardest. A decline in global equity prices would further dampen US GDP due to wealth effects, impacting consumer spending power in a primary destination for Sri Lanka's ICT/BPM and manufacturing sectors. • Inflationary Surge: Inflation across major economies could rise by 1.3pp. Notably, India—a key regional partner—could see inflation jump by over 2pp, likely increasing the cost of intermediate goods and food imports for Sri Lanka. • Revised 2026 Growth Projections: US: 1.5% (down from 2.2%) Eurozone: < 1.0% (down from 1.3%) China: < 4.0% (down from 4.3%) _Note: Analysis based on Fitch Ratings and Oxford Economics Global Economic Model; excludes potential government fiscal interventions to cap energy prices._