Middle-East war risks triggering global recession

The conflict between Israel and Hamas risks embroiling other Middle East nations and has the potential of fueling another bout of inflationary pressures and even tipping the global economy into a recession.

Israel’s military is poised for a ground assault in Gaza to hunt down the militant group that slaughtered more than a thousand Israelis. Hezbollah threatens to open up a new front, and there are concerns war could spread to Lebanon and Syria. Should Israel come into direct conflict with Iran, oil prices would soar and global growth would drop.

An escalation of the Israeli-Hamas war would be the second geopolitical jolt for the global economy in less than two years.

“This may be the most dangerous time the world has seen in decades,” Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said in the bank’s third-quarter earnings statement. “The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

World

There’s concern that militias in Lebanon and Syria that support Hamas will join the fighting. A sharper escalation could bring Israel into direct conflict with Iran, a supplier of arms and money to Hamas. In that scenario, Bloomberg Economics estimates oil prices could soar to $150 a barrel and global growth drop to 1.7% — a recession that takes about $1 trillion off world output. The Arab-Israeli war of 1973, which led to an oil embargo and years of stagflation in industrial economies, is the clearest example.

The International Monetary Fund lifted its global inflation forecast for next year and called for central banks to keep policy tight until there’s a durable easing in price pressures. In most countries, the IMF, an institution charged with monitoring the health of the global economy, foresees inflation remaining above central bank targets until 2025.

Women working for Japan’s top banks earn little more than half the amount of their male colleagues in a stark example of the country’s entrenched gender divide. Overall, Japan has one of the worst gender pay gaps among nations in the Organization for Economic Cooperation and Development.

Argentina’s central bank sharply raised its key rate for the sixth time this year in an effort to contain inflation before a presidential election. Singapore’s central bank kept monetary settings unchanged for a second time this year amid waning core inflation, while increasing the frequency of its policy decisions to quarterly to be nimble in responding to evolving challenges.

US

US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation. The data suggest the central will keep the door open to another interest-rate hike this year, even as central bankers emphasize patience ahead of their next meeting.

Small-business optimism dropped to a four-month low in September, reflecting worsening expectations for the economy and credit conditions. The share of survey respondents saying it was harder to get a loan compared to three months ago increased to 8% on net — the most since March, when Silicon Valley Bank collapsed.

Consumers’ year-ahead inflation expectations rose sharply in early October, driving a steep deterioration in views of their finances as well as sentiment. Americans expect prices will climb at a 3.8% rate over the next year, the highest in five months and up from the 3.2% expected in September, according to the preliminary October reading from the University of Michigan.

Europe

UK economic growth remained weak in August, as a modest rebound from a strike-afflicted July failed to ease concerns that output would shrink in the third quarter. The figures reinforce a picture of an economy losing steam in the face of a sharp increase in borrowing costs.

Asia

China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the official growth target, according to people familiar with the matter. The discussions underscore mounting concerns among China’s top leadership over the trajectory of the world’s second-largest economy and how growth compares to the US.

Chinese consumers traveled and spent less over the Golden Week holiday than the government had hoped, while lukewarm home sales stirred concerns about whether more support will be needed to bolster economic growth. The comparatively soft figures add to recent evidence that while some sectors are on the mend, the broader economy is still far from roaring back.

Emerging Markets

Israel’s escalating war with Hamas is fueling a dramatic shift in the outlook for interest rates, just days after anticipation built for a hike to stabilize the shekel. But concerns over the impact of a prolonged conflict on the economy have deflated market expectations for another hike by the Bank of Israel, instead turning the focus to what would be its first monetary easing since the pandemic.

Mexico’s inflation accelerated for the first time in months in late September, putting pressure on policymakers to keep defying the regional trend of easing interest rates as they face a tricky path ahead.