Risk of a Wider Middle East War Threatens a ‘Fragile’ World Economy

THE NEW YORK TIMES: After shocks from the pandemic and Russia’s invasion of Ukraine, there’s little cushion if the fighting between Hamas and Israel becomes a regional conflict.

Palestinians displaced by the Israel-Hamas war shopping at a market in Khan Yunis in Gaza this week. | Yousef Masoud for The New York Times
Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook, threatening to dampen growth and reignite a rise in energy and food prices.

Rich and poor nations were just beginning to catch their breath after a three-year string of economic shocks that included the Covid-19 pandemic and Russia’s invasion of Ukraine. Stinging inflation has been dropping, oil prices have stabilized and predicted recessions have been avoided.

Now, some leading international financial institutions and private investors warn that the fragile recovery could turn bad.

“This is the first time that we’ve had two energy shocks at the same time,” said Indermit Gill, chief economist at the World Bank, referring to the impact of the wars in Ukraine and the Middle East on oil and gas prices.

Those price increases not only chip away at the buying power of families and companies but also push up the cost of food production, adding to high levels of food insecurity, particularly in developing countries like Egypt, Pakistan and Sri Lanka.

As it is, nations are already struggling with unusually high levels of debt, limp private investment and the slowest recovery in trade in five decades, making it tougher for them to grow their way out of the crisis. Higher interest rates, the result of central bank efforts to tame inflation, have made it more difficult for governments and private companies to get access to credit and stave off default. » | Patricia Cohen | Wednesday, November 1, 2023

JP Morgan CEO Warns World May Be Facing ‘Most Dangerous Time’ in Decades

THE GUARDIAN: Jamie Dimon says Israel-Gaza conflict may have ‘far-reaching impacts’ on energy prices, food costs and international trade

The JP Morgan boss, Jamie Dimon, has warned the world may be living through “the most dangerous time the world has seen in decades” as Israel prepares to launch an expected ground offensive on Gaza.

The escalating conflict could have “far-reaching impacts” on energy prices, food costs, international trade and diplomatic ties, he said as JPMorgan Chase, America’s largest bank, reported earnings for the latest quarter.

While the lender posted another robust set of results, Dimon cautioned that interest rates may increase further in the United States, as the savings of consumers dwindle.

Dimon said: “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. This may be the most dangerous time the world has seen in decades. » | Callum Jones in New York | Friday, October 13, 2023

Forecast by the IMF Shows Germany and Italy Are to Tumble into Recession in 2023 | Business Special

The Dollar Is Strong. That Is Good for the U.S. but Bad for the World.

THE NEW YORK TIMES: The Federal Reserve may have no choice but to wage a relentless inflation fight, but countries rich and poor are feeling the pain of plunging currencies.

The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.

Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.

On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.

In Nigeria and Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.

“For the rest of the world, it’s a no-win situation,” said Eswar Prasad, an economics professor at Cornell and author of several books on currencies. At the same time, he said, the Fed has no choice but to act aggressively to control inflation: “Any delay in action could make things potentially even worse.” » | Patricia Cohen, Reporting from London | Monday, September 26, 2022

Experts Can Only Guess as We Head Into the Unknown
THE SUNDAY TIMES: American Account

“DON’T project beyond the range of the known observations” is a rule followed by careful economists. In plain English this means, for example, that we know how American consumers behave when petrol prices move between $1 and $4 a gallon, “the range of the known observations”. But we haven’t much of an idea what consumers would do if prices rose to $5 — no experience, no data to inform our forecasts. Which is why we have to be very careful when predicting the effect of the various policies that are being adopted to fight the credit crisis and recession. We simply have no experience of this combination of events.

So we have reason to worry about the galaxy of stars that Barack Obama has assembled to help him right the American economy. They are so bright, so self-confident, so accustomed to being the smartest guy or girl in the room, that doubt is not one of the emotions with which they are familiar, as was true of the bright young “quants” (mathematical economists) who designed the models used to manage the risks taken on by Lehman Brothers and AIG. Something about hubris and nemesis comes to mind. >>> Irwin Stelzer | Sunday, December 14, 2008

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