IMF Warns of Potential Economic Impact on Neighboring Countries From Israel-Hamas Conflict

Israel-Hamas conflict is projected to adversely affect several Middle Eastern economies, such as Egypt, Lebanon, and Jordan, as stated by Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), during an interview with CNN's Richard Quest at the Future Investment Initiative, also known as "Davos in the Desert" in Saudi Arabia.

Tourism is expected to be negatively impacted and the insurance costs for transporting goods will increase. Additionally, investors will become more cautious about traveling to the region, and there is a possibility of a greater influx of refugees in countries that are already accepting a significant number. The IMF views the global economy as extraordinarily resilient, but also more prone to anxiety due to the war, according to Georgieva.

Her remarks emphasize that the economic aftermath of the conflict is expected to escalate, despite the current calmness in financial markets regarding its consequences.

Following the aggressive assault by Hamas on Israel on October 7, oil prices experienced an initial surge but have since receded and are considerably lower than the peaks observed in September when market concerns were fueled by output reductions implemented by Saudi Arabia and Russia.

Left to right: Citigroup's Jane Fraser, JPMorgan CEO Jamie Dimon, and Goldman Sachs's David Solomon.

Brendan McDermid/Elizabeth Frantz/Reuters/Jason Alden/Bloomberg/Getty Images

Jamie Dimon and other top bankers visit Saudi Arabia as Israel-Hamas war rages

Meanwhile, yields on US government bonds, which move inversely to prices, are currently at levels not witnessed in over ten years. This suggests that there has not been a renewed surge in safe-haven demand, which occurred just after the Hamas attack.

Despite the stock market's indifference to the conflict, the United Nations Conference on Trade and Development (UNCTAD) issued a warning on Wednesday about the severe repercussions for the already fragile "Palestinian economy." This includes the Gaza Strip, the West Bank, and East Jerusalem.

Assessing the extent of the damage is challenging, but it is projected to reach tens of billions of dollars, according to Richard Kozul-Wright, the director of UNCTAD's globalisation and development strategies division.

To break the destructive cycle of partial reconstruction, it is essential to negotiate a peaceful solution based on international law, as stated in the UN agency's report published last month.

The Palestinian economy experienced a 3.9% growth in gross domestic product in 2022. However, it still lags significantly behind its pre-pandemic per capita level. A report has emphasized enduring obstacles such as widespread poverty and a decline in foreign assistance.

In 2022, residing in Gaza implied being confined to one of the most densely populated areas globally, experiencing frequent power outages, and facing limited availability of clean water and an inadequate sewage system, according to a statement by UNCTAD on Wednesday. Furthermore, when considering inflation, the GDP in Gaza was nearing its lowest point since 1994.

High interest rates here to stay

Saudi Arabia's yearly investment conference has attracted numerous prominent figures from Wall Street, despite increasing regional risks posed by the war. Several of these individuals expressed a pessimistic outlook on the global economy during a discussion held on Tuesday.

Georgieva concurred with these sentiments, stating that the war is occurring during a period of sluggish growth, elevated interest rates, and a surge in public debt. Governments had allocated substantial resources to shield their economies from the impact of the Covid-19 pandemic and the Ukraine conflict. Emphasizing the need for caution, she urged individuals to comprehend that higher interest rates would endure for an extended period. This was underscored by the slow rate at which inflation was subsiding.

Inflation is projected to remain above 2% until at least 2024, and possibly even into 2025. Only after this period would we expect interest rates to moderate to a more suitable level: positive but not excessively high. Reported by Winston Lo.