Once again, the global economy is at risk of derailing, this time due to the war in the Middle East. In its World Economic Outlook (WEO), the International Monetary Fund predicts, in the worst-case scenario – with infrastructure damage and prolonged war – a slowdown in GDP growth to near 2%. “This would mean a near-global recession (growth rate below 2%), a phenomenon that has only occurred four times since 1980, the last two times corresponding to the global financial crisis and the Covid-19 pandemic.”
During the past year, the report indicates, “obstacles related to rising trade barriers and increased uncertainty have been offset by favorable factors such as technological investments, accommodating financial conditions (notably the weakness of the US dollar), and supportive fiscal and monetary policies. The conflict in the Middle East represents a significant obstacle to these favorable factors due to its impact on commodity markets, inflation expectations, and financial conditions.”
“The risks of deterioration predominate: geopolitical tensions could worsen further – turning the situation into the most serious energy crisis of modern times – or internal political tensions could explode,” warns the International Monetary Fund in its World Economic Outlook.
“Political tensions can interplay with changes in trade policies and other international policies. Regardless of geopolitical developments, trade conflicts could erupt,” the report cautions. “The crucial role of rare earths in global supply chains constitutes a major point of friction.”
Furthermore, “a weakening of institutions, particularly central bank independence and monetary policy credibility, could increase inflation expectations, especially in the context of rising overall inflation due to a shock to consumer goods prices.” On the positive side, economic activity could benefit from a new impetus through AI-related investments, and ultimately transform into sustainable growth if faster AI adoption leads to significant productivity gains and increased business dynamism. Economic activity could also be supported by a new momentum in structural reforms and sustainable easing of trade tensions, as indicated by the IMF.
(Source: Adnkronos)
