By Anthony DeBarros and Matt Grossman

Recent months have been marked by slower growth, stubborn inflation and a weaker job market. Economists worry the war in Iran could exacerbate all three.

With hostilities paused by a tenuous cease-fire last week, the path ahead for the war itself is highly uncertain -- let alone its consequences for American workers and shoppers. But a group of economists regularly surveyed by The Wall Street Journal has broadly dimmed its outlook for the year ahead, compared with their expectations earlier this year.

Most don't think the conflict will derail a resilient economy that has withstood a string of recent hurdles, from searing inflation to seismic changes in trade and immigration policy. The economists in the survey put the probability of a recession in the next 12 months at 33%, up just a bit from the 27% probability they saw in January.

But the latest survey, conducted April 3-9, now estimates cooler 2026 growth, at 2%, versus the 2.2% forecast in January, along with higher consumer inflation, now projected at 3.2% at year-end versus the previous 2.6% forecast.

Economists also downgraded their outlook for job creation to a net 45,000 a month, from their previous estimate of 64,500.

"The shock from the war is more than an oil shock; it is roiling supply chains the world over, again," said Diane Swonk, chief economist at KPMG. The economy may be able to escape an all-out recession, but Swonk is concerned about "a mild bout of stagflation," an uncomfortable mix of rising prices and sluggish growth.

The conflict's hit to energy markets was apparent in the inflation report released Friday. Consumer prices were 3.3% higher in March than a year earlier, the fastest increase since 2024. Energy goods including gasoline jumped 21% in March from February.

Even if the current cease-fire ultimately marks the end of the war, the disruptions to the oil market are still likely to push up consumer prices in the months ahead.

The survey forecasts that West Texas Intermediate, the U.S. oil-price benchmark, will ease to $79.66 a barrel at the end of the year, about 18% lower than Friday's closing price of $96.57. Yet economists still raised their forecast for year-end core inflation, which excludes energy and food prices, to 2.9%, from 2.6% in January. That is based on the price index of personal-consumption expenditures, which the Federal Reserve targets. It suggests many are concerned that even if the conflict resolves, its inflationary effects will continue to ripple through the economy in the months ahead.

Asked how high crude oil would need to rise to push the probability of a recession above 50%, economists gave responses ranging from $95 to $225 a barrel, with an average $146. Their estimates for how long prices would have to stay elevated to cause a recession vary from four to 55 weeks, with an average duration of 12 weeks.

The U.S. and Iran agreed to a cease-fire on April 7, in the middle of the survey period. The Journal allowed respondents to update their figures after the announcement. A total of 68 economists responded. Not every economist answered every question.

The cease-fire appears to have had little effect on the outlook. Many economists had already assumed the Strait of Hormuz, through which petroleum products and other commodities such as fertilizer transit from the Persian Gulf, would eventually reopen and oil prices would fall.

James Knightley, chief international economist at ING, said that his forecast assumes the Strait of Hormuz will be almost fully open to oil tankers by the summer. He still thinks that the inflation gauge the Fed targets will show 4% this year, twice the central bank's target.

"If you look at the marine traffic, nothing is actually happening," Knightley said in an interview Thursday. "It might be that our outlook is perhaps a little too optimistic."

Despite forecasts for slower 2026 job creation, economists' average forecast for unemployment at the end of this year was unchanged at 4.5%, which would be up slightly from 4.3% in March.

With higher expected inflation and a relatively upbeat unemployment outlook, economists now think the Fed will deliver one quarter-point rate cut in 2026, down from the two expected in January.

Economists were split on whether accelerating inflation or weaker growth poses a bigger threat. Some believe that households' finances are strong enough that higher oil prices won't force shoppers to tighten their budgets. That could allow companies to pass along higher costs to their customers.

Before the war, years of persistent inflation hadn't shown signs of denting consumer spending, which grew by 5.3% before adjusting for inflation in the 12 months through February, the Commerce Department said last week.

"For now, the data is still telling us that we should be very reluctant to assume a large decline in growth," said James Egelhof, chief U.S. economist at BNP Paribas. "Inflation is rising with no clear end in sight."

Others are more worried the oil shock will force shoppers to finally cut back spending, damping companies' appetite to hire.

"The main risk is that consumers, who have been supporting the economy despite all other shocks over the past year, will finally be strangled," said University of Michigan economist Daniil Manaenkov.

Amy Crews Cutts, president of economics-consulting firm AC Cutts & Associates, put the likelihood of recession at 85%, the most pessimistic of any forecaster in the survey. "With the Iran war, I think we now have the catalyst," she said.

Write to Anthony DeBarros at anthony.debarros@wsj.com and Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

April 12, 2026 05:30 ET (09:30 GMT)

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