Global Economic Recovery
In a recent report, the World Bank’s economists have sounded the alarm about the potentially devastating impact on the global economy recovery due to the escalating crisis in the Middle East. The warning comes in the aftermath of airstrikes conducted by the UK and US on Houthi sites in Yemen, raising concerns about the broader implications for the global economic recovery.
The heightened tension is anticipated to trigger inflation, disrupt energy supplies, and result in higher interest rates, lower growth, and increased geopolitical uncertainty. The recent airstrikes in Yemen have raised worries about global supply disruptions and the expanding conflict in the Middle East.
Both the US and the UK face domestic challenges related to the economic fallout from the crisis. UK Prime Minister Rishi Sunak is set to address MPs on Monday, addressing concerns about a prolonged conflict and outlining the longer-term plan for Middle East peace. In the US, President Joe Biden is facing opposition from within his party regarding military support for Israeli actions.
The World Bank highlights the real dangers posed by the crisis, combined with the ongoing war in Ukraine. Potential consequences include surging energy prices, broader implications for global activity and inflation, financial stress related to real interest rates, persistent inflation, weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters.
The recent attacks on commercial vessels in the Red Sea have already disrupted key shipping routes, causing disturbances in supply networks and increasing the likelihood of inflationary bottlenecks. Economists express concerns that major economies around the world may face a recession this year, and modest central bank cuts to borrowing costs may exacerbate the cost of living crisis for millions of households.
The World Bank also warns of significant disruptions to energy supplies, potentially resulting in higher energy prices, with spillover effects on other commodity prices and heightened geopolitical and economic uncertainty. The report notes a decline in Suez Canal traffic, with container costs rising from $1,500 in November to $4,000 in December, emphasizing the economic impact of altered shipping routes.