Israel-Hamas war economic ‘earthquake’ for MIddle East: IMF

An Israeli army self-propelled howitzer fires rounds near the border with Gaza in southern Israel on Oct. 11, 2023. — AFP

The war between Israel and Hamas has darkened the horizon for a world economy that is already experiencing weak growth and is an economic “earthquake” that will have challenging repercussions for the Middle East, the IMF officials said Thursday.

“It will be very difficult to improve economically and financially because there are several key questions that we still don’t have answers to,” Jihad Azour, IMF Director of the Middle East and Central Asia department said in a panel discussion at the IMF conference in Morocco.

“The oil prices have already increased by $5 as of the beginning of the week… while other markets did not move much it would be very challenging because of the magnitude, the speed and the unknowns to have a clear reading of the short-term and medium-term, but it is big, it is an earthquake.”

However, while oil prices have risen because of the conflict, they are still low compared to prices in the last few months, according to Azour.

Jolted global markets

The armed conflict, which Israel’s Prime Minister Benjamin Netanyahu called a “war,” has jolted global markets, with oil and gold prices soaring high, a stronger US dollar and a slump in airline stocks.

When the markets opened on Monday, investors reacted quickly, which caused an uptick in the prices of gold and crude oil, which have since levelled down.

Along with several European airlines like Lufthansa and British Airways, several other international carriers’ stocks fell, including those of Delta, United, and American Airlines.

Although costs have now rebounded, the state of travel is still unstable.

Emirates Airlines stated on Wednesday that all flights to Tel Aviv will be suspended until October 20. Similar choices were made this week by other international airlines.

Speaking at the IMF-World Bank annual meetings in Marrakesh, Morocco, IMF Chief Kristalina Georgieva said the International Monetary Fund was “very closely monitoring how the situation evolves” and how it is affecting oil markets.

Georgieva noted that the IMF´s World Economic Outlook, which was released earlier this week but drafted before the conflict broke out, already showed weak global growth.

“We are experiencing severe shocks that are now becoming the new normal for a world that is weakened by weak growth and economic fragmentation,” she said at a news conference.

She said it was “too early” to assess the impact of the conflict between Israel and Palestinian group Hamas.

But, Georgieva added, “very clearly, this is a new cloud on not the sunniest horizon for the world economy — new cloud, darkening this horizon.”

The IMF has kept its growth forecast a 3.0 percent for this year but lowered it to 2.9% for 2024, warning that the economy is “limping along, not sprinting.”

The weekend attack by Palestinian militant group Hamas on Israel from Gaza has left thousands dead and rattled oil markets amid fears that other nations might intervene and possibly disrupt shipments in the Middle East.

Global oil prices jumped at the start of the conflict but have since eased as there was no immediate disruption to supply flows.

IMF chief economist Pierre-Olivier Gourinchas said Tuesday that IMF research shows that a 10% increase in oil prices could weigh down on global growth by 0.15 percentage points and increase inflation by 0.4 percentage points.

The International Energy Agency said on Thursday the risk of oil supply disruptions due to the war is limited but that it stands ready to intervene in markets if necessary.

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