OECD: Escalation of conflict in the Middle East will lead to significant economic risks

Shafaq News / The Organization for Economic Cooperation and Development (OECD) warned on Wednesday that the escalating conflict between Israel and Hamas could have significant repercussions on the global economy, particularly impacting oil and gas prices and potentially affecting international maritime trade.

According to assessments by the Paris-based organization, if the conflict intensifies and spreads across the region, the risks of economic slowdown and increased inflation would be far greater than they currently stand, as reported by France24.

The organization emphasized that in the event of a heightened war in the Middle East and its expansion, the global economy's potential impact could primarily be through oil and gas prices.

It highlighted that a $10 per barrel rise could lead to a 0.2-point increase in global inflation in the first year and a 0.1-point decrease in growth.

Furthermore, the organization pointed out that international trade could significantly be affected due to two major international trade routes within the conflict area, namely the Strait of Hormuz and the Suez Canal.

The OECD has lowered its global growth forecast for this year to 2.9% while maintaining next year's forecast unchanged. The impact of the war on the global economy is relatively limited so far.

The organization reduced this year's growth forecast by 0.1 percentage point and kept next year's forecast at 2.7%.

Claire Lombardelli, the chief economist at the organization, explained that the hurdles restraining the economy are not solely originating from the Middle East, clarifying that "tight financial conditions, weakened trade, and decreased confidence all have severe consequences."

Additionally, it is expected that inflation, which remains high, will gradually decline to 5.3% next year among the member countries of the organization, compared to 7.4% this year.

In the Eurozone, it is forecasted to reach 2.9% in 2024, compared to 5.5% this year, and in the US, it is projected to be 2.8% compared to 3.9% in 2023.

Lombardelli noted that "the pace of growth is uneven," as the US is anticipated to register a growth rate of 2.4% this year and 1.5% next year (+0.2 percentage points compared to previous September forecasts), while Eurozone's growth rate is 0.6% this year and 0.9% next year.

On the other hand, China's growth rate may reach 5.2% this year and 4.7% next year, with an increase of 0.1 percentage point compared to last September's expectations. The UK is expected to register growth rates of 0.5% in 2023 and 0.7% in 2024.