IMF Sees Inflation, Growth Risks If Israel-Hamas War Widens

(Bloomberg) -- The International Monetary Fund’s No. 2 official says that the war between Israel and Hamas could spur inflation and hamper global growth if it turns into a wider conflict that causes a significant increase in oil prices.

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Modeling by the organization, whose mandate includes global economic surveillance, shows that a 10% increase in oil prices leads to inflation being 0.4 percentage points higher a year later, Gita Gopinath, the fund’s First Deputy Managing Director, said in an interview with Bloomberg TV’s Francine Lacqua.

Under that scenario, global output falls by 0.15 percentage point. That would add to an already difficult environment for inflation and growth that’s challenging central banks.

Read more: IMF Warns of Stubborn Inflation, Weak Global Growth in 2024

It’s a bit early to know the full implications of the conflict, and much will depend on whether it draws in other countries, she said.

“If it turns into a wider conflict, and that causes oil prices to go up, that does have an effect on the economies,” she said. “That’s usually one of the channels through which we see that affecting global numbers.”

While nations in the Middle East are likely to be most directly affected, the impact from higher energy prices can become very widespread, Gopinath said.

More than 2,000 people have reportedly been killed since the start of the worst attack on Israel in decades. Israeli forces have since been battling to retake captured territory and signs are mounting it’s preparing for a ground invasion of Gaza.

Gopinath also spoke about China, debt restructuring issues and trade restrictions:

• China is in a difficult situation with respect to the economy and will need to do more to address the crisis in its property sector

• “They cut interest rates, I expect that they’ll need to do more. Much more action needs to be done in terms of addressing the property sector problem”

  • Related story: China Needs ‘Forceful’ Action on Its Real Estate Woes, IMF Says

• There are nations that will require debt restructuring and there is progress in getting a more efficient restructuring process.

• “We’ve seen low income countries that need to go through debt restructuring and it’s important to go through that in a timely manner. One goal of this week is to have a more efficient restructuring process”

  • Related story: IMF Caught Off Guard as China Strikes Sri Lanka Debt Deal (1)

• Countries are placing more trading restrictions on each other; there were 3,000 new trade restrictions just last year.

• “We really should make sure that this does not end up with all of us just turning inwards completely and a huge return to protectionism”

  • Related story: IMF Warns Fragmentation Imperils Food Security, Green Transition

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