The war in the Middle East started five weeks ago. The economic damage is just getting started.

Multiple economic models now point to Q2 2026 as the peak impact zone. The OECD had been preparing to upgrade its global growth forecast before the conflict broke out.

That upgrade is gone - completely wiped out by the energy shock.

The Numbers Keep Getting Worse

Goldman Sachs raised its recession odds to 30% and expects unemployment to hit 4.6% by the end of the year, up from 4.4% in February.

Several major firms now expect inflation closer to 3% than 2% this year.

The OECD is even more aggressive - it forecasts U.S. headline inflation hitting 4.2% in 2026, a full 1.2 percentage points above where it was projected before the war.

Global stocks have fallen 5.5% since fighting began. Asian markets have been hit the hardest.

How Bad Could It Get?

Oxford Economics modeled a severe but short-lived conflict. Even in that scenario, world GDP growth drops to 1.4% - more than a full percentage point below normal.

The U.S. and most major advanced economies slide into recession. China's growth falls to 3.4%.

Capital Economics expects the worst to hit in Q2 as higher energy prices squeeze household incomes and push up business costs.

Their baseline assumes oil markets recover in the second half of 2026 as shipments through the Strait of Hormuz slowly resume.

The Gulf states get hit the worst. Oxford models show GDP in the region falling more than 8% in 2026 before bouncing back once production restarts.

What to Watch

The next few months will tell investors whether this shock looks more like 2022's inflation scare - painful but temporary - or something that drags the U.S. into a full recession.

The Fed is stuck. Inflation is rising. Growth is slowing. Rate cuts look further away now than they did a month ago.

Q2 earnings and the next round of jobs data will be the first real check on how deep this goes.