Economists Warn of Global Recession Triggered by Middle East War
Bloomberg’s economists have raised concerns about the possibility of a global recession being triggered by a direct war between Iran and Israel. In an article published last week, they outlined how this conflict in the Middle East could have severe consequences for the world economy.
Risk of Disruption to World Economy
The economists highlighted that the ongoing conflict between Israel and Hamas already has the potential to disrupt the global economy, but if more countries become involved, it could escalate further and lead to a recession. They stressed that this risk is real.
Potential Consequences
If the conflict between Israel and Iran were to intensify, with Iran providing arms and funding to Hamas, Bloomberg Economics estimates that oil prices could skyrocket to $150 per barrel. This would result in global growth dropping to 1.7% and a recession that would reduce world output by approximately $1 trillion.
Vulnerability of World Economy
According to the economists, the current state of the world economy is already vulnerable due to factors such as Russia’s invasion of Ukraine last year causing inflation. A war in an energy-producing region could reignite inflation and have broader consequences, including increased unrest in the Arab world and potential impact on next year’s US presidential election.
Analysis of Potential Scenarios
Bloomberg Economics conducted an analysis of three different scenarios to assess their effects on global growth and inflation. The first scenario involves hostilities mainly within Gaza and Israel. The second scenario expands the conflict into neighboring nations like Lebanon and Syria, essentially turning it into a proxy war between Israel and Iran. The third scenario envisions a direct war between Israel and Iran.
Dangerous Low Probability Scenario
While the economists acknowledge that a direct conflict between Iran and Israel is a low probability scenario, they emphasize that it is also a dangerous one. Such a conflict could act as the trigger for a global recession, with soaring oil prices and plunging risk assets having a significant negative impact on growth and inflation.
Hot Take: Global Recession Looms if Middle East Conflict Escalates
Bloomberg’s economists have warned that an escalation of the conflict between Iran and Israel in the Middle East could result in a global recession. With the potential for soaring oil prices, reduced global growth, and heightened inflation, the consequences of this war could extend far beyond the region. It is crucial to monitor the situation closely and consider the implications for the world economy.
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