ECONOMYNEXT – More emerging market outlooks are deteriorating as the US–Iran war disrupts oil supplies, hitting APAC banks in the Philippines and Sri Lanka, Fitch Ratings has said.
“A higher share of sector outlooks are ‘deteriorating’ across global emerging markets (EMs) due to effects from the US–Iran war,” Fitch Ratings said.
“The wider APAC region’s high dependence on oil and gas imports from Gulf Cooperation Council (GCC) countries exposes it to supply disruption, with potential negative macroeconomic effects reflected in ‘deteriorating’ sector outlooks for banks in the Philippines and Sri Lanka.”
The ‘deteriorating’ GCC corporate sector outlook reflects heightened geopolitical risks, reduced tourism and transport activity, higher supply chain costs due to the strait closure, and our expectation of real estate cooling. Sector liquidity is good, however, due to pre-conflict financing activity, it said.
As the prospective deal to extend the US–Iran ceasefire and reopen the Strait of Hormuz is subject to high uncertainty, the ratings agency said, sovereigns face conflict spillovers affecting economic growth, inflation and bond yields, and geopolitical risks.
The full statement is reproduced below:
More Emerging Market Sector Outlooks Move to Deteriorating on Iran War
Fitch Ratings-London: A higher share of sector outlooks are ‘deteriorating’ across global emerging markets (EMs) due to effects from the US–Iran war, Fitch Ratings says. These effects are being felt more widely than China’s economic resilience, while the prospective deal to extend the US–Iran ceasefire and reopen the Strait of Hormuz is subject to high uncertainty.
About one-third of our 2026 EM sector outlooks – general forward-looking assessments of underlying conditions compared to the previous calendar year – are now ‘deteriorating’. Just 13% of these outlooks were ‘deteriorating’ in our initial assessment in December 2025. This follows our 2026 mid-year update when we lowered 17 and raised just two of the outlooks (excluding structured finance). The remaining EM sector outlooks are all ‘neutral’.
Sovereigns face conflict spillovers affecting economic growth, inflation and bond yields, and geopolitical risks. We changed our Asia-Pacific (APAC), Middle East and North Africa, and Sub-Saharan Africa sovereign sector outlooks to ‘deteriorating’. Greater China was the only region to have an upward sovereign sector outlook change – to ‘neutral’ – as robust exports sustain growth and deflation appears to be ending.
Resilient growth and easing deflationary pressures also led to our China banking sector outlook moving to ‘neutral’ from ‘deteriorating’. However, the wider APAC region’s high dependence on oil and gas imports from Gulf Cooperation Council (GCC) countries exposes it to supply disruption, with potential negative macroeconomic effects reflected in ‘deteriorating’ sector outlooks for banks in the Philippines and Sri Lanka, as well as for APAC corporates.
The ‘deteriorating’ GCC corporate sector outlook reflects heightened geopolitical risks, reduced tourism and transport activity, higher supply chain costs due to the strait closure, and our expectation of real estate cooling. Sector liquidity is good, however, due to pre-conflict financing activity.
We lowered the Middle Eastern and Turkish banking sector outlooks to ‘deteriorating’ on expectations of lower GDP growth, which could add pressure to asset quality and profitability. However, market access has proven more resilient than initially expected and is likely to remain so. The Saudi and Turkish non-life insurance sector outlooks were also lowered, to ‘neutral’ and ‘deteriorating’, respectively.
Most Latin American sovereigns appear well positioned owing to favourable macroeconomic starting conditions, policy buffers, and, in some cases, terms-of-trade benefits. The region’s ‘neutral’ sovereign sector outlook is unchanged. However, we revised banking sector outlooks for Brazil and Colombia to ‘deteriorating’ on weakening asset quality and political uncertainty. We also lowered the Latin American retail sector’s outlook to ‘deteriorating’, reflecting a broad-based weakening in operating conditions across the region.
Geopolitical risks were already high in Eastern Europe, where our sovereign sector outlook remains ‘deteriorating’. We lowered the sector outlook for the region’s finance and leasing companies to ‘deteriorating’ due to the weaker macroeconomic backdrop.
No sector outlooks that relate solely to EM issuers are ‘improving’, although higher hydrocarbon prices did lead to our global Oil & Gas sector outlook moving to ‘improving’ from ‘neutral’. GCC producers’ ability to benefit is conditional on their independence from the strait or access to alternative routes. In APAC, pure refiners with benchmark-linked margins and limited retail price risk are better placed than integrated fuel marketers exposed to delayed cost pass-through and higher working capital pressure.
Sector outlooks are distinct from rating Outlooks. The US–Iran conflict’s effects have led to the stalling of upward ratings momentum in some EMs, but ratings have been broadly resilient. For example, negative rating actions among GCC corporates and banks have been limited to Rating Watch Negative placements on Qatari issuers affected by Qatar’s sovereign Rating Watch Negative or directly affected by attacks, and three UAE homebuilders.
A full list of our mid-year 2026 sector outlooks is available here.