What will be the impact of the war in the Middle East on the world economy? Report Nyt
After the shocks caused by the pandemic and the Russian invasion of Ukraine, markets fear that the war between Hamas and Israel will turn into a regional conflict. The New York Times in-depth analysis
Fears that Israel's military operations in Gaza could escalate into a regional war are clouding the outlook for the global economy, threatening to curb growth and reignite rising energy and food prices. The NYT writes.
Rich and poor nations were just starting to catch their breath after a three-year series of economic shocks, including the Covid-19 pandemic and Russia's invasion of Ukraine. Inflation fell, oil prices stabilized, and predicted recessions were avoided.
WILL THE WAR IN GAZA AFFECT THE RECOVERY?
Now, some major international financial institutions and private investors are warning that the fragile recovery could worsen.
“It's the first time we've had two energy shocks at the same time,” said Indermit Gill, chief economist at the World Bank, referring to the impact of wars in Ukraine and the Middle East on oil and gas prices.
These price increases not only affect the purchasing power of families and businesses, but also increase the costs of food production, increasing high levels of food insecurity, especially in developing countries such as Egypt, Pakistan and Sri Lanka .
ALL THE PROBLEMS OF THE GLOBAL ECONOMY
Nations are already struggling with unusually high debt levels, weak private investment and the slowest trade recovery in five decades, making it harder for growth to emerge from the crisis. Rising interest rates, the result of central banks' efforts to tame inflation, have made it more difficult for governments and private companies to access credit and avoid default.
“All these things are happening at the same time,” Gill said. “We are in one of the most fragile circumstances for the world economy”.
Gill's assessment echoes that of other analysts. Jamie Dimon, chief executive of JPMorgan Chase, said last month that "this could be the most dangerous moment the world has seen in decades" and described the conflict in Gaza as "the highest and most important thing for the world Western".
Recent economic problems have been fueled by escalating geopolitical conflicts spanning continents. Tensions between the United States and China over technology transfers and security only complicate efforts to collaborate on other issues such as climate change, debt relief or violent regional conflicts.
Prevailing political concerns also mean that traditional monetary and fiscal tools, such as adjusting interest rates or government spending, may be less effective.
WHAT POWELL (FED) SAID ABOUT THE WAR IN THE MIDDLE EAST
Brutal fighting between Israel and Hamas has already claimed the lives of thousands of civilians and inflicted excruciating misery on both sides. However, if the war remains contained, the effects on the world economy will likely be limited, analysts agree.
Jerome H. Powell, chairman of the Federal Reserve, said Wednesday that “it is not clear at this point that the conflict in the Middle East is on track to have significant economic effects” on the United States, but added: “This does not mean that isn't incredibly important."
THE ROLE OF OIL
Middle Eastern oil producers do not dominate the market as they did in the 1970s, when Arab nations sharply cut production and imposed an embargo on the United States and some other countries after a coalition led by Egypt and Syria attacked Israel.
Currently, the United States is the world's largest oil producer, while alternative and renewable energy sources make up a larger share of the world's energy mix.
“It's a highly volatile, uncertain and scary situation,” said Jason Bordoff, director of Columbia University's Center on Global Energy Policy. But there is “a recognition among most parties, the United States, Europe, Iran, other Gulf countries,” he continued, referring to the Persian Gulf, “that it is in no one's interest for this conflict to expand significantly beyond Israel and Gaza."
Bordoff added that missteps, poor communication and misunderstandings, however, could push countries into escalation even if they don't want it.
Furthermore, a significant and prolonged decline in global oil supply – whatever the reasons – could simultaneously slow growth and inflame inflation, a cursed combination known as stagflation.
Gregory Daco, chief economist at EY-Parthenon, said the worst-case scenario, in which the war spreads, could send oil prices soaring to $150 a barrel, from around $85 now. “The global economic consequences of this scenario are severe,” he warned, citing a mild recession, a collapse in stock prices and a $2 trillion loss to the global economy.
UNCERTAINTY DOMINATES
The prevailing atmosphere is one of uncertainty, which weighs on investment decisions and could discourage businesses from expanding into emerging markets. The cost of borrowing has skyrocketed, and companies in countries from Brazil to China are expected to struggle to refinance their debt.
At the same time, emerging markets such as Egypt, Nigeria and Hungary have suffered some of the worst consequences of the pandemic, with growth lower than expected, according to consultancy Oxford Economics.
Conflicts in the Middle East and economic tensions could also increase the flow of migrants to Europe from that region and North Africa. The European Union, which is teetering on the brink of recession, is in the midst of negotiations with Egypt to increase financial aid and control immigration.
China, which receives half its oil imports from the Persian Gulf, is struggling with a slumping housing market and its weakest growth in nearly three decades.
By contrast, the United States has confounded forecasters with its strong growth. From July to September, the economy grew at an annual rate of just under 5%, thanks to slowing inflation, savings stocks and robust hiring.
India, buoyed by enthusiastic consumers, is on track, with an estimated growth of 6.3% in the current fiscal year.
SUB-SAHARAN AFRICA
The region with the bleakest outlook is sub-Saharan Africa, where, even before the outbreak of fighting in Israel and Gaza, this year's total output was estimated to fall by 3.3%. Incomes in the region have not risen since 2014, when oil prices collapsed, said M. Ayhan Kose, who oversees the World Bank's annual Global Economic Prospects report.
“Sub-Saharan Africa has already experienced a lost decade,” he said in an interview. Now “think about another lost decade.”
As for energy markets, something that “happens in the Middle East will not stay in the Middle East,” he added. “It will have global implications.”
(Extract from the eprcommunication press review)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/primo-piano/guerra-medioriente-impatto-economia/ on Sun, 05 Nov 2023 06:54:12 +0000.