US Treasury Secretary, Janet Yellen, has stated that the current conflict between Israel and Hamas is unlikely to have a significant impact on the global economy. While the potential economic impact of the crisis is being monitored, it is not a major driver of the global economic outlook. Yellen made these comments during the International Monetary Fund (IMF) and World Bank annual meetings held in Morocco on Wednesday.
The stock markets worldwide have largely ignored the conflict, with Wall Street posting gains on Tuesday, partly due to a fall in oil prices. The recent surge in global oil prices was caused by fears that the war could cause wider instability in the oil-producing Middle East. One risk is the potential for tighter enforcement of sanctions on Iran, which has backed Hamas in the past. However, Yellen clarified that the United States had not relaxed sanctions on oil exports from Iran in any way.
If there were to be a supply squeeze, there could be upward pressure on oil prices, which were already elevated following cuts to exports by major producers Saudi Arabia and Russia. Chevron (CVX) also announced on Monday that it had closed a natural gas field off the coast of Israel. A prolonged shutdown could lead to a drop in Israeli gas exports to its neighbors, Egypt and Jordan, as well as squeeze an already tight global gas market, causing energy prices to rise.
IMF Chief Economist, Pierre-Olivier Gourinchas, has said this week that commodity prices pose a serious risk to the inflation outlook and could become more volatile amid climate and geopolitical shocks. However, the IMF sees better chances that central banks will manage to tame inflation without tipping the global economy into recession. In its latest World Economic Outlook report, the agency expects the world’s economy to expand by 3% this year, below the average of 3.8% achieved between 2000 and 2019. The report also cautions that economic growth remains weak and patchy. The IMF has revised its forecast for US growth upward, compared with predictions made in July, and downgraded its outlook for Europe and China. The agency has shaved its forecast for global growth in 2024 by 0.1 percentage point to 2.9%.