Mideast war drives global economy to new uncertainty
The world economy has lost momentum from the impact of higher interest rates, the invasion of Ukraine and widening geopolitical rifts, and it now faces new uncertainty from the war between Israel and Hamas militants, International Monetary Fund warned Tuesday.
The IMF said it expects global economic growth to slow to 2.9% in 2024 from an expected 3% this year. The forecast for next year is down a notch from the 3% it predicted back in July.
The deceleration comes at a time when the world has yet to fully mend from a devastating but shortlived COVID-19 recession in 2020 and now could see fallout from the Middle East conflict — particularly to oil prices.
A series of previous shocks, including the pandemic and Russia's war in Ukraine, has slashed worldwide economic output by about $3.7 trillion over the past three years compared with pre-COVID trends.
“The global economy is limping along, not sprinting,” IMF chief economist Pierre-Olivier Gourinchas said at a news conference during the organization's annual meeting in Marrakech, Morocco.
The IMF expectation of 3% growth this year is down from 3.5% in 2022 but unchanged from its July projections.
It's “too early” to assess the impact on global economic growth from the days-old war between Israel and the militant Palestinian group Hamas in Gaza, Gourinchas said. He said the IMF was “monitoring the situation closely” and noted that oil prices have risen by about 4% in the past several days.
“We've seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” he said.
If sustained, a 10% increase in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%, Gourinchas said.
“But again, I emphasize that it's really too early to jump to any conclusion here,” he added.
So far, the world economy has displayed “remarkable resiliency,” Gourinchas said, at a time when the U.S. Federal Reserve and other central banks worldwide have aggressively raised interest rates to combat a resurgence in inflation.
The hikes have helped ease price pressures without putting many people out of work. That combination, he said, is “increasingly consistent” with a so-called soft landing — the idea that inflation can be contained without causing a recession.
The IMF sees global consumer price inflation dropping from 8.7% in 2022 to 6.9% this year and 5.8% in 2024.
The United States is a standout in the IMF's latest World Economic Outlook, which was completed before the outbreak of war between Israel and Hamas. The IMF upgraded its forecast for U.S. growth this year to 2.1% (matching 2022) and 1.5% in 2024 (up sharply from the 1% it had predicted in July).
The U.S., an energy exporter, has not been hurt as much as countries in Europe and elsewhere by higher oil prices, which shot up after Russia invaded Ukraine last year and jumped more recently because of Saudi Arabia's production cuts. And American consumers have been more willing than most to spend the savings they accumulated during the pandemic.