Investing.com -- In a note to clients on Wednesday, Bank of America lowered its global growth outlook for 2026, warning that the economic fallout from the Iran war is delivering what it describes as a “mild stagflation” shock.

BofA analyst Claudio Irigoyen said it is revising forecasts “to reflect the economic impact of the war so far,” cutting its 2026 global growth estimate by 40 basis points to 3.1 percent.

At the same time, BofA lifted its 2026 global inflation forecast by 90 basis points to 3.3 percent, saying the conflict represents a “stagflationary shock” that will hit inflation faster than growth.

The bank now expects global monetary policy rates to be about 30 basis points tighter than previously projected.

BofA assumes oil will average $92.50 a barrel this year, with prices “around $100/bbl for the rest of 2026” before easing below $70 by late 2027.

Its baseline factors in a 4 million barrels per day deficit in the second quarter and a smaller shortfall in the second half. An escalation scenario would push prices to an average of $130 this year, with peaks above $150.

The shock is “widespread but uneven,” BofA added.

It cut its U.S. growth forecast by 50 basis points to 2.3 percent and raised its inflation outlook, noting a 70bp upward revision to headline inflation.

The euro area saw a 60bp downgrade to growth and a 160bp increase to inflation forecasts. China’s outlook was trimmed only slightly, with growth now expected at 4.5 percent.

BofA warned that escalation risks remain significant, saying the tail risk of a recessionary outcome is “fatter than currently priced in.”