The IMF’s No. 2 official said 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.
Modeling by the organization, whose mandate includes global economic surveillance, showed that a 10 percent increase in oil prices would lead to inflation being 0.4 percentage points higher a year later, IMF deputy managing director Gita Gopinath said in an interview on Bloomberg TV.
Under that scenario, global output would fall by 0.15 percentage points, which would add to an already difficult environment for inflation and growth that is challenging central banks.
Photo: Bloomberg
It is a bit early to know the full implications of the conflict, and much would depend on whether it draws in other countries, Gopinath 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 that it is preparing for a ground invasion of Gaza.
Gopinath also spoke about China, debt restructuring issues and trade restrictions.
“[Beijing] 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,” she said.
She spoke of progress in making the debt restructuring process more efficient.
“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,” Gopinath said.
Meanwhile, 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,” Gopinath said.
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