IMF warns oil price surge sparked by Middle East war could hobble global recovery
The International Monetary Fund has warned that a surge in oil prices caused by war in the Middle East could hobble the already ‘limping’ global economic recovery.
The president of the World Bank, Ajay Banga, said the conflict was ‘an economic shock we don’t need’.
Israel’s war with Hamas adds to turbulence on financial markets already convulsed by worries about ‘higher for longer’ interest rates.
IMF chief economist Pierre-Olivier Gourinchas said a 10 per cent rise in oil prices could lop 0.15 per cent off GDP growth next year and add 0.4 percentage points to global inflation.
He added oil prices had already gone up by about 4 per cent over the past few days.
IMF chief economist Pierre-Olivier Gourinchas (pictured) said a 10% rise in oil prices could lop 0.15% off GDP growth next year and add 0.4 percentage points to global inflation
Gas prices in the UK and Europe were also rising yesterday.
‘This is something that we see often in situations where there is geopolitical instability in the region – we see spikes in energy prices and oil prices.
This reflects the potential risks that there could be disruption either of production or transport of oil in the region. But it’s really too early to jump to any conclusion here.’
Separately, Banga said that the Israel-Hamas conflict would make it harder for some countries to achieve so-called ‘soft landings’ – bringing down inflation without causing a recession – if it widens.
‘It’s a humanitarian tragedy and it’s an economic shock we don’t need,’ Banga added. The war was triggered when Hamas attacked Israel at the weekend, murdering and kidnapping civilians.
He noted that central banks were ‘beginning to feel a little more confident that there was an opportunity for a soft landing, and this kind of just makes it harder’ The comments came during the IMF and World Bank joint annual meetings in Marrakesh, Morocco.
The IMF presented its latest World Economic Outlook – a mixed picture as the global economy continues to heal from ‘wounds’ of Covid with a ‘slow and uneven’ recovery. The report said the prospect of a ‘soft landing’ was becoming more likely.
But with average annual growth over coming years predicted to be its lowest in decades, Gourinchas added: ‘The global economy is limping along, not sprinting.’
Economists at Deutsche Bank had said the global economic climate had a ‘striking number of parallels’ with the 1970s – with high inflation, spikes in energy prices and growing industrial unrest.
‘Over the weekend, the attacks on Israel showed how geopolitical risk can return unexpectedly,’ they added. The IMF’s global financial stability report highlighted the risks posed by growing expectations that interest rates will remain higher for longer.
In a new and tougher stress test for 900 lenders in 29 countries – devised after the collapse of Credit Suisse and a series of US regional firms including Silicon Valley Bank – it found that 5 per cent will be vulnerable to stress.
That rises to 30 per cent in a worst case ‘severe but plausible’ scenario of low growth and high inflation known as ‘stagflation’.
The IMF did not say which banks could be in trouble but they included both small and large lenders.
Tobias Adrian, its director of monetary and capital markets department, called for tighter supervision and said there was an ‘urgent need’ for banks to improve capital levels.
But he played down fears about the recent turbulence in bond markets, saying that the sell-off has been ‘orderly’.
