Coface’s recent assessment highlights downgrades for Saudi Arabia, the United Arab Emirates (UAE), and Qatar, primarily due to rising geopolitical tensions in the Middle East. This development is expected to have serious ramifications, potentially leading to a reduction in global economic growth by 0.5 percentage points during both 2026 and 2027. The trade credit insurer’s evaluation, released on October 13, includes three country downgrades, four upgrades, and 20 adjustments in sector assessments, which encompass 12 downgrades and eight upgrades. Coface predicts global economic growth of 2.5% in 2026, a dip from 2.8% in 2025, followed by a slight rebound to 2.6% in 2027.
Impact of Geopolitical Tensions on Commodity Prices
The deteriorating geopolitical landscape has resulted in increased prices across energy, metals, and agricultural commodities, thereby amplifying inflationary pressures and tightening global financial conditions. For instance, oil prices surged beyond $100 per barrel in September, with oil and natural gas costs witnessing over 50% and nearly 100% spikes, respectively. Additionally, wheat prices have climbed by 40% year-on-year, driven by strikes on Black Sea port terminals and severe summer heatwaves in Europe. To combat these inflationary trends, the Federal Reserve and the European Central Bank each raised interest rates by 25 basis points, while long-term interest rates surged more than 100 basis points across several major currency zones since late February.
Country-Specific Downgrades and Sector Risks
Coface’s downgrades include Saudi Arabia falling from A3 to A4, the UAE shifting from A2 to A3, and Qatar moving from A3 to A4. The rationale behind these adjustments centers on their vulnerability to disruptions in energy infrastructure and export routes, particularly through the Strait of Hormuz. Moreover, the agri-food sector in six countries—France, Austria, Poland, the UAE, Saudi Arabia, and Argentina—also faced downgrades. In Europe, extreme summer weather conditions played a significant role in this downgrading, while concerns regarding reliance on food imports heavily influenced the Gulf states’ assessments. Argentina’s agricultural landscape continues to struggle with financial strains, including business failures, high operational costs, and narrowed profit margins.
Global Economic Resilience Amidst Challenges
While these challenges loom large, the global economy appears to be demonstrating a degree of resilience, buoyed by household consumption and investments related to artificial intelligence in the US. Furthermore, the economic performance in Germany and Spain has exceeded expectations. In Asia, countries like Vietnam and India are poised to gain from increased infrastructure spending and advancements in AI technologies. However, China grapples with weaker domestic demand, while rising energy costs pose problems for Thailand and the Philippines.
Coface Chief Economist Jean-Christophe Caffet has expressed concerns about the ongoing conflict in the Middle East, which rekindles the threat of a new global inflation shock. He warns that escalating energy, commodity, and transport costs are compelling central banks to uphold restrictive monetary policies. This, in turn, creates a more challenging landscape for vulnerable governments and businesses, forcing them to navigate a complex web of economic uncertainties while striving for stability. As geopolitical tensions continue, the international economic environment will demand careful monitoring and strategic adaptation to mitigate risks.