In a client note released on Wednesday, Bank of America revised its 2026 global outlook lower, attributing the change to economic effects stemming from the Iran war that it describes as a "mild stagflation" shock.
BofA analyst Claudio Irigoyen said the bank is adjusting its forecasts "to reflect the economic impact of the war so far," reducing its 2026 global growth estimate by 40 basis points to 3.1 percent.
Concurrently, the bank raised its 2026 global inflation projection by 90 basis points to 3.3 percent, characterizing the conflict as a "stagflationary shock" that will push inflation higher more quickly than it depresses growth. BofA now expects global monetary policy rates to end up around 30 basis points tighter than it had previously projected.
Oil price assumptions underlie much of the revision. BofA assumes oil will average $92.50 a barrel this year, with prices "around $100/bbl for the rest of 2026" before easing to below $70 by late 2027. Its baseline scenario incorporates a second-quarter deficit of 4 million barrels per day, followed by a smaller shortfall in the second half of the year. In an escalation scenario, the bank said oil could average $130 a barrel this year with peaks above $150.
The bank described the economic shock as "widespread but uneven," reflecting differing regional exposures to energy and trade disruptions.
On a country and regional basis, BofA made several specific adjustments. The United States growth forecast was cut by 50 basis points to 2.3 percent while headline inflation received a 70 basis point upward revision. The euro area saw a 60 basis point downgrade to growth alongside a 160 basis point increase to its inflation forecast. Chinas outlook was reduced slightly, with growth now projected at 4.5 percent.
BofA also flagged that escalation risks remain significant, warning that the tail risk of a recessionary outcome is "fatter than currently priced in." The bank's revised baseline and stress scenarios reflect the possibility of more severe energy-price pressures should the conflict intensify.
These changes represent a reassessment of the near-term trade-off between higher inflation and slower growth driven by geopolitical disruptions and elevated energy costs. The bank's numbers and scenario assumptions form the basis for its guidance on policy-rate paths and market expectations into 2026 and beyond.