Businesses have turned more pessimistic about the global economic outlook amid the ongoing United States (US)/Israel war with Iran, according to think tank Oxford Economics.

In an April 30 report, Oxford Economics head of macro scenarios Jamie Thompson said the conflict in the Middle East is weighing on sentiment, prompting firms to downgrade their expectations for global growth, although the impact remains less severe than during earlier geopolitical shocks.

“Businesses are becoming increasingly pessimistic about prospects for the global economy because of the US/Israel war with Iran,” the report said.

Based on the think tank’s latest Global Risk Survey, companies now expect global gross domestic product (GDP) growth of two percent this year, down by 0.4 percentage point (ppt) from estimates prior to the outbreak of the conflict.

Despite the downgrade, the decline in sentiment is still more contained compared with the early stages of the Russia-Ukraine war, when growth expectations were cut by a much larger 1.3 ppts.

A key concern for businesses is the continued disruption in the Strait of Hormuz, a critical artery for global oil shipments, which remained effectively closed during the survey period.

Views among firms are divided on how quickly normal shipping activity will resume. Around one-quarter of respondents expect a rapid recovery, while about one-fifth are significantly more pessimistic, anticipating that traffic could remain below pre-war levels even beyond the end of the year.

The report noted that while nearly half of businesses expect the conflict to end by June, only about one-quarter believe shipping volumes through the strait will return to normal levels within the same timeframe.

“Many businesses expect full reopening of the Strait of Hormuz to take time, even in the event of a swift peace deal,” the report said.

The survey showed a widespread decline in business confidence, with around three-quarters of respondents reporting that they have become more pessimistic about global growth prospects over the past month.

About one-fifth of firms said their outlook has become “significantly more negative,” marking a sharp increase compared with pre-war sentiment.

At the same time, downside risks to growth are becoming more pronounced. Nearly three-quarters of respondents now view risks to the global economy as tilted to the downside, although fewer see them as heavily skewed compared with 2022 levels.

Perceived recession risks have also risen, with businesses estimating on average a one-in-six chance of a global recession this year, higher than before the outbreak of the conflict.

Geopolitical tensions have emerged as the dominant risk to the global economy in the near term, with 63 percent of businesses identifying the US/Israel war with Iran as the top threat over the next two years. Nearly four-fifths ranked it among the top two risks.

Beyond the immediate horizon, concerns remain elevated. More than four-fifths of respondents said geopolitical risks will remain very significant over the next five years, reflecting growing unease about prolonged instability.

Other medium-term risks cited include deglobalization, high public debt, and the prospect of interest rates staying higher for longer, alongside the possibility of financial market disruptions.

Businesses have also revised up their inflation expectations, projecting global inflation to average 3.6 percent in 2027, above baseline forecasts. Respondents see more than a one-in-four chance that inflation could exceed four percent next year.

Despite the gloomy outlook, businesses continue to identify potential upside factors.

Around two-fifths of respondents pointed to the possibility of lower oil prices, which could result from a swift resolution of the conflict and the reopening of the Strait of Hormuz, as the main near-term boost to global growth.

Meanwhile, technological advancements—particularly in artificial intelligence (AI)—remain the most significant long-term positive driver for the global economy, with more than half of businesses citing AI as the top upside over the coming decades.

The survey, conducted from April 20 to 30, covered 120 businesses across various sectors and regions, providing a snapshot of corporate sentiment amid ongoing geopolitical tensions.