IMF sees inflation, growth risks if Israel-Hamas war widens

Washington: 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.

Modeling by the organization, whose mandate includes global economic surveillance, shows that a 10 per cent 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.

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.