World Bank Warns of Energy Price Surge if Mideast War Spreads

World Bank Warns of Energy Price Surge if Mideast War Spreads - The New York Times

Supported by
SKIP ADVERTISEMENT

World Bank Warns of Energy Price Surge if Mideast War Spreads

A new economic report predicted a year of weak growth and said the world faced a decade of “wasted opportunity.”

Reporting from Washington

The global economy is at risk of a “wasted” decade and the weakest stretch of growth in 30 years, the World Bank warned on Tuesday, saying a sluggish recovery from the pandemic and crippling wars in Ukraine and the Middle East are expected to weigh heavily on output.

In its semiannual Global Economic Prospects report, the World Bank projected that the growth in world output will slow further in 2024, declining to 2.4 percent from 2.6 percent. Although the global economy has been surprisingly resilient, the report warned that its forecasts were subject to heightened uncertainty because of the two wars, a diminished Chinese economy and the increasing risks of natural disasters caused by global warming.

The converging crises in recent years have put the world economy on track for the weakest half-decade in 30 years.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s chief economist.

Global growth is projected to slow for the third straight year in 2024. Developing countries are bearing the brunt of the slowdown, with high borrowing costs and anemic trade volumes weighing on their economies.

Although policymakers have made progress in bringing inflation down from its 2022 high, the war in Gaza between Israel and Hamas is threatening to become a broader conflict that could spur a new bout of price increases by causing the cost of oil and food to spike.

“The recent conflict in the Middle East, coming on top of the Russian Federation’s invasion of Ukraine, has heightened geopolitical risks,” the report said. “Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation.”

The recent drone and missile attacks in the Red Sea by the Iranian-backed Houthi militia have already affected international commerce by pushing up oil prices and freight and insurance rates while diverting maritime traffic to a much longer and costlier route around Africa.

Economists at Capital Economics wrote in a report this month that the redirecting of trade ships away from the Red Sea is unlikely to lead to a resurgence of global inflation, but they suggested that if the war became a broader regional conflict it could pose inflationary risks.

The disruptions to shipping routes follow a year in which, other than during worldwide recessions, global trade growth was the slowest in the past 50 years, according to the World Bank.

If the conflict in the Middle East does not widen, the World Bank expects that global oil prices will edge lower this year as growth weakens and production of oil increases.

Beyond the ongoing wars, signs of fragility in the Chinese economy also remain a worry. World Bank economists pointed to lingering weakness in China’s property sector and lackluster consumer spending as evidence that the world’s second-largest economy will continue to underperform this year. They suggested that could pose headwinds for some of China’s trading partners in Asia.

Chinese growth is expected to slow to 4.5 percent this year from 5.2 percent in 2023. Outside the pandemic-induced downturn, that would be China’s slowest expansion in 30 years.

Europe and the United States are also poised for another year of weak output in 2024.

The World Bank projects that economic growth in the euro area will rise to 0.7 percent in 2024 from 0.4 percent in 2023. Despite easing inflation and rising wages, tight credit conditions are expected to constrain economic activity.

Growth in the United States is expected to slow to 1.6 percent this year from 2.5 percent in 2023. The World Bank attributes the slowdown to elevated interest rates — which are at their highest level in 22 years — and a pullback in government spending. Businesses are expected to be cautious about investing because of economic and political uncertainty, including around the 2024 election.

Despite such slow growth, Biden administration officials say they deserve credit for corralling inflation while keeping the economy afloat.

“I think we’ve made tremendous progress,” Treasury Secretary Janet L. Yellen told reporters on Monday. “It’s very unusual to have a period in which inflation declines as much it has while the labor market remains strong."

She added: “But that’s what we’re seeing, and that’s why I say we’re enjoying a soft landing.”

Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. More about Alan Rappeport

Order Reprints|

Today’s Paper|
Subscribe

Our Coverage of the Israel-Hamas War

News and Analysis
The U.N. special representative on sexual violence in conflict
has accepted Israel’s invitation to investigate allegations of sex crimes committed by Hamas on Oct. 7, a spokesman for Israel’s Ministry of Foreign Affairs said.
A day after
meeting with top Israeli officials in Tel Aviv, Antony Blinken, the U.S. secretary of state, traveled to Ramallah, in the Israeli-occupied West Bank, where he discussed the war in Gaza with Mahmoud Abbas, the leader of the Palestinian Authority.
Israel
has appointed one of the country’s most prominent jurists as the ad hoc judge to sit on the bench on its behalf as it faces face accusations at the International Court of Justice that it has committed genocide in the Gaza war.

Read More
Tailoring the Message: With a vast chasm between how Israelis see the war and how much of the world does, Israel’s leaders
are adopting different rhetoric when addressing the two audiences.
A Broader Conflict Looms: With its proxies launching attacks from Lebanon to the Red Sea and its nuclear program suddenly revived,
Iran is posing a new challenge to the West— this time with Russia and China on its side.
Tensions at an Israeli College: At the University of Haifa, a uniquely mixed institution where more than 40% of students are Arabs,
anxieties about resuming classes during the war are amplified by what is among the school’s proudest achievements — its diversity.
A U.S. Labor Shift: For decades, the most prominent American unions were largely supportive of Israel. Today, some activists are
urging their unions to call for an immediate cease-fire in Gaza and succeeding.