Fragile Global Economy Faces New Crisis in Israel-Gaza War

MARRAKECH, Morocco — The International Monetary Fund said Tuesday that the pace of the global economic recovery is slowing, a warning that came as a new war in the Middle East threatened to upend a world economy already reeling from several years of overlapping crises.

The eruption of fighting between Israel and Hamas over the weekend, which could sow disruption across the region, reflects how challenging it has become to shield economies from increasingly frequent and unpredictable global shocks. The conflict has cast a cloud over a gathering of top economic policymakers in Morocco for the annual meetings of the IMF and the World Bank.

Officials who planned to grapple with the lingering economic effects of the pandemic and Russia’s war in Ukraine now face a new crisis.

“Economies are at a delicate state,” Ajay Banga, the World Bank president, said in an interview on the sidelines of the annual meetings. “Having war is really not helpful for central banks who are finally trying to find their way to a soft landing,” he said. Banga was referring to efforts by policymakers in the West to try to cool rapid inflation without triggering a recession.

Banga said that so far, the impact of the Middle East attacks on the world’s economy is more limited than the war in Ukraine. That conflict initially sent oil and food prices soaring, roiling global markets.

“But if this were to spread in any way, then it becomes dangerous,” Banga added, saying such a development would result in “a crisis of unimaginable proportion.”

In its latest World Economic Outlook, the IMF underscored the fragility of the recovery. It maintained its global growth outlook for this year at 3% and slightly lowered its forecast for 2024 to 2.9%. Although the IMF upgraded its projection for output in the United States for this year, it downgraded the euro area and China while warning that distress in that nation’s real estate sector is worsening.

“We see a global economy that is limping along, and it’s not quite sprinting yet,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. In the medium term, “the picture is darker,” he added, citing a series of risks including the likelihood of more large natural disasters caused by climate change.

This article originally appeared in <a href="https://www.nytimes.com/2023/10/10/business/economy/global-economy-israel-gaza-war.html">The New York Times</a>.