More than three months after the start of the war in the Middle East, the global economy appears to be showing resilience, said Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), in a post published on the organization's blog.
Commodity prices, inflation and inflation expectations, as well as financial conditions have been affected, but there are still no signs of a slowdown in the global economy. Strong economic momentum is observed in the world's largest economies - the United States and China. However, the overall picture of global resilience masks significant differences, the IMF Managing Director said.
According to her, even among advanced economies, some countries and communities have been hit harder, while in Africa the negative consequences are more tangible. Meanwhile, amid the prolonged closure of the Strait of Hormuz and the damage to infrastructure in the Middle East from the fighting, uncertainties and risks remain high, Georgieva warned.
The IMF is expected to provide an updated analysis of the global economic outlook on July 8.
Factors for global resilience
At the beginning of the conflict, an immediate concern was its impact on energy prices and the subsequent effects on inflation, which were significant, the IMF chief noted.
She recalled that oil prices are 30 percent higher than the levels recorded before the war. Still, this is lower than the levels observed in the earlier stages of the conflict, despite the prolonged closure of the strait. Some countries, such as China, have so far managed to mitigate the shocks, taking advantage of their large oil reserves. This has also helped ease pressure on demand in otherwise hard-hit Asia. Increased production and utilization of refineries outside the Gulf region, while not enough to offset the shock, have also limited the rise in oil prices.
Demand-restraining measures or measures to limit the pass-through of price pressures have also helped to mitigate the impact of the conflict. However, there are limits to how long countries can cope with higher budget spending and greater external financing needs. However, in many economies, higher oil prices are contributing to an acceleration in headline inflation.
This is worrying, but it is not the whole picture. It is also important to consider whether people and businesses expect a more lasting weakening in their purchasing power. And these medium-term expectations have generally remained stable. This is an encouraging sign of confidence in the commitment of central banks to price stability, Georgieva stressed.