Iran crisis to weigh on global growth, boost inflation - Goldman Sachs

(Sharecast News) - Goldman Sachs has trimmed its expectations for global economic growth and upped inflation forecasts on the back of the ongoing crisis in the Middle East. The Wall Street bank now estimates that higher oil prices will lower global GDP by 0.3 percentage points to 2.6%, and boost headline inflation by between 0.5 and 0.6pps over the next year, with a smaller 0.1 to 0.2pp boost to core inflation.

"Risks are skewed toward larger effects as long as the Strait of Hormuz remains closed," it added.

The lender based its adjusted forecasts on its commodity team's latest expectations for oil prices.

In a note published on Monday, the bank confirmed its commodity analysts are now assuming 21 days of reduced flows through the Strait of Hormuz - up from 10 days previously - which is expected to leave Brent crude averaging $98 a barrel in March-April. It is then slated to fall back to $71 by the end of the year.

However, Goldman's more extreme scenario would see prices reach $150 and remain elevated.

Goldman's US economists have also raised their recession probability to 25% from 20%, noting: "In Europe, where impacts are nonlinear under prolonged disruption, recession risks are significantly higher.

"Higher oil prices also increase the risk of inflation spill-overs weakening the bond market; this is especially worrisome for equities when ERPs have already fallen and are back to pre-global financial crisis levels."

Global energy prices have soared since the US attacked Iran at the start of the month, leading to the outbreak of widespread hostilities across the region. The Strait of Hormuz, through which around 20% of the world's oil is transported, is now deemed too dangerous to pass, leaving many tankers stranded.

Benchmark Brent - which was trading around $70 prior to the outbreak of war - was $101.97 as at 1300 GMT, while West Texas Intermediate was $95.13.