Sustained high interest rates, the war in Ukraine, the unraveling of global trade networks, and now the new Mideast war have left the global economy “limping along, not sprinting,” the International Monetary Fund (IMF) said in an overview at its annual meeting last week.
The world’s GDP will grow by 3 percent this year but just 2.9 percent in 2024, the IMF predicted.
A series of shocks, including the COVID catastrophe, has robbed the global economy of $3.7 trillion in potential productivity since early 2020, the agency calculated.
The Hamas attack on Israel and Israel’s retaliation boosted oil prices about 4 percent, Pierre-Olivier Gourinchas, the IMF’s chief economist, noted.
If the war drags out, widens, or cuts the flow of oil from Mideast producers, oil prices could rise by at least 10 percent, he said. That would shave 0.15 percent off global economic production and add 0.4 percent to inflation.
Neither Iraq, Kuwait, Saudi Arabia, nor the United Arab Emirates have risen in support of Hamas, indicating that none are likely to cut oil production because of the conflict, Carsten Fritsch, a commodities analyst at Commerzbank, told the Financial Times.
Global inflation will fall to 6.9 percent this year after reaching 8.7 percent last year, but will dip only to 5.8 percent in 2024, the IMF said.
The fund also cut back its economic growth projections for most of the world.
The 20-country Eurozone will scratch out a 0.7-percent increase this year, boosting it to 1.2 percent in 2024. Germany’s economy is on trend to contract 0.5 percent in 2023, but recover with a 0.9-percent gain next year.
Despite the Ukraine war and Western sanctions, Russia’s productivity will grow 2.2 percent this year, slipping to 1.1 percent in 2024. Much of the economic activity is in war-related production.
China’s GDP will expand by 5 percent this year, equaling Beijing’s growth target, the IMF said, but slip to 4.2 percent next year. Both figures are reduced from the IMF’s July projections.
The U.S. remains the world’s bright spot, matching last year’s 2.1-percent growth this year and growing by 1.5 percent in 2024. In July, the IMF had predicted only a 1-percent rise for the U.S. next year.
Due to wars, reshoring and “friendshoring” of supply chains, and 3,000 new trade strictures countries imposed last year, world trade will grow just 0.9 percent this year, but recover to a 3.4-percent expansion in 2024, according to the IMF.
TREND FORECAST: With the Western world now focused on the Israel War and support to keep funding the Ukraine weakening before the Hamas attack, we forecast that Kyiv will take drastic measures to get more money and munitions to fight the Russians. In an effort to regain political and popular support, Ukraine will do all they can to again capture headline news from which they have now disappeared from. Thus, they will launch a major false flag event, attack on a nuclear plant and/or strike at the heart of Moscow etc.
This in turn will drive up oil, gas and other commodity prices while putting more downward pressure on global economic growth.
Middle East Meltdown
The world economy has been “limping along,” the International Monetary Fund (IMF) said last week at its annual meeting. Now the war between Hamas and Israel could drive global inflation higher again and hobble the already uneven worldwide economic recovery.
Any conflict in the Mideast has the potential to disrupt the oil market, which likely would send a wave of tumult through every economic sector.
“Economies are at a delicate state,” Ajay Banga, president of the World Bank, said in a Wall Street Journal interview last week. “War is not helpful for central banks trying to find their way to a soft landing.”
So far, the Middle East war has had less global economic impact than the war in Ukraine, he said, “but if this [conflict] were to spread, then it becomes dangerous” and could bring “a crisis of unimaginable proportions.”
Oil prices have already been rising after OPEC+, chiefly Saudi Arabia and Russia, have held to production cutbacks they made in 2022 and earlier this year.
If the war raises oil’s price by 10 percent, the world economy would lose 0.15 of a percent in GDP and inflation would rise by 0.4 percent, the IMF has calculated.
The IMF has held to its forecast of a worldwide 3-percent GDP growth this year but has trimmed its outlook for 2024 to 2.9 percent.
Before Hamas attacked Israel, the IMF predicted the 20-country Eurozone’s economy would squeak out 0.7-percent growth next year, compared to 3.3 percent in 2022. Germany, Europe’s chief economic engine, is seen as shrinking by 0.5 percent this year, then expanding by 0.9 percent in 2024.
This year, the U.K.’s economy will grow by only 0.5 percent. It expanded by 4.1 percent in 2022, according to IMF calculations.
Sub-Saharan Africa’s economy will pucker by 3.3 percent this year as nations there stagger under a debt load equal to 60 percent of the region’s total economic production, twice the debt of a decade ago, according to the IMF.
TREND FORECAST: As we have forecast, should the United States and Israel militarily confront Iran, it will turn a terrible economic future into a horribly destructive one. Not only will inflation spike, equities and the global economy will crash.