In a recent analysis, economists from Bloomberg shed light on the potential global economic repercussions of the ongoing conflict between Israel and Hamas and its potential to trigger a global recession, especially if it escalates.
The insight, offered by three seasoned economists, including Ziad Daoud, the chief emerging markets economist, and also Bloomberg’s global economist, explains that the conflict has the potential to derail the global economy, especially if it draws in more nations.
Per their words, the “risk is real,” and could tip in a global recession. They elucidate a dire scenario where a more intense escalation could pull Israel and Iran into direct confrontation, given Iran’s role as a benefactor to Hamas, which is labeled a terrorist group by the U.S. and the European Union.
The economists added:
In that scenario, Bloomberg Economics estimates oil prices could soar to $150 a barrel and global growth drop to 1.7% — a recession that takes about $1 trillion off world output.
Drawing a broader picture, they note the current fragile state of the world economy, still grappling with the aftermath of inflation spikes triggered by Russia’s invasion of Ukraine the previous year.
The economists also argued that another war in an energy-rich region could reignite inflation, with ramifications potentially rippling from renewed Arab world unrest to the U.S. presidential election next year, where voter sentiment often sways with gasoline prices.
Bloomberg Economics notes that it evaluated the possible global growth and inflation impacts under three varied scenarios. The first scenario confines the hostility largely to Gaza and Israel, the second sees the conflict spilling over to neighboring countries like Lebanon and Syria, metamorphosing it into a “proxy war between Israel and Iran,” as per the economists.
A third scenario unfolds with a direct war between the regional adversaries, Israel and Iran. This direct conflict is a “low probability scenario” that could “be the trigger for a global recession.”
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