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The US/Israel-Iran conflict and the accompanying rise in energy prices prompted Oxford Economics (OE) to revise its 2026 global GDP growth forecast down 0.2ppts to 2.8%, against last month’s view.
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Although this small reduction assumes that the conflict will be temporary, as the average oil price retreats to an average of US$80/bbl in Q2, a long-term energy supply disruption may produce persistent oil and gas prices with deep and long-lasting effects on financial markets, supply disruptions and the wider economic effects of low confidence.
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At present, the direction of the conflict remains uncertain with regard to policy objectives and potential outcomes raising the risk of the forecast. With the introduction of fuel metering strategies in parts of Asia, there are growing signs that these dire risks are coming to light. We continue to monitor the situation.
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Reflecting our new economic and global LV forecasts, we have reduced the March 2026 full-year forecast for LV production by 1.1 mn units to 93.5 mn (+0.6% YoY).
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Our ‘short war’ projections focus on around 25% of the LV production forecast decline in the Middle East region – mainly Iran – while Europe and other Asian countries account for the majority of the remaining forecast cuts. • However, large levels of uncertainty are associated with the current forecast; the nature and duration of the conflict may have broad and lasting global implications for demand-led LV production activity.
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Protracted conflicts, coupled with high electricity prices, disruptions, high input costs and potential supply shortages will further disrupt the affordability of cars and car business models, and ultimately risk a global economic downturn. In this situation, the near-term risks of LV production worldwide exceed 2 million units.
Asia-Pacific
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We lowered our full-year 2026 LV production forecast for the AP region by 460k, mainly due to expected negative impacts from the Middle East (ME) war.
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While the volatile economic effects from energy constraints and the volatility of input costs undermine the demand-led activity of the LV market in the region, exporters – such as Japan and Thailand – face additional headwinds, due to their direct exposure to the depressed ME LV markets.
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The forecast cut of China’s LV production (-220k) is mainly related to the response of the domestic market to the changes in the subsidy programs introduced at the beginning of 2026.
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Given China’s 3-4 month oil stocks, domestic market-led LV outflows are less exposed to the effects of short-term ME tensions. And while the broader drag on the global economy could undermine China’s LV exports, the market’s shift to NEVs could provide a competitive boost.
In Europe
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We cut 220k from our full-year LV production forecast for Europe for 2026 as the negative economic impact of the Middle East (ME) conflict fluctuates amid a broader demand environment.
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A large part of the reduction was supported by a weak outlook for domestic LV demand, with direct exposure of European LV exports to the worst ME LV markets accounting for around 10% (~20k) of the reduction.
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The operational disruption related to the ME events, at the moment, does not seem to have caused a noticeable disruption to the automotive sector, with many indicators pointing to a broad increase in input costs and profit margins, rather than immediate threats of disruption to the automotive industry in Europe.
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Although the launch of a new model in 2026 is expected to provide some support, high levels of uncertainty pose a downside risk.
North America
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Strong inventory management, seasonal factors, and model change disruptions combined to support a 3.7% (YoY) contraction in the year to February 2026 for North American LV production volumes.
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While this is consistent with last month’s outlook, we have reduced our full-year forecast for 2026 by 80k reflecting a weaker US LV demand environment, as fluctuating energy prices and a volatile stock market are set to provide a drag on auto demand-led activity.
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Higher US tax refunds are expected to help support consumer spending in 2026, but the uncertainty created by the duration of the ME conflict, combined with the emerging cost of living pressure, poses serious risks to the US LV market and regional LV production volumes.
South America
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Although somewhat protected from the profound effects of the war in the Middle East, the combined LV production of 2026 in the S region. American continued its slow start to February contracting 6% YoY.
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Performance remains mixed among the region’s main LV producers: output in Brazil remaining flat (YoY) and volumes in Argentina falling more than 30% YoY.
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Although the sluggish economy hampers the pace of growth of the Argentina LV market in 2026, the measurement model and the disruption of the change of selected OEMs mainly undermine the production volumes of Argentina LV for the whole year (-11.9% YoY).
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Conversely, new and innovative model introductions in Brazil, mainly from Chinese OEMs, help support LV domestic output in 2026 (+10% YoY).
“Executive Snapshot: Global Light Vehicle Production” was originally created and published by Just Auto, a brand owned by GlobalData.
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