IMF, World Bank warn Gaza war, Red Sea attacks imperil global economy

FILE PHOTO: FILE PHOTO: Houthi military helicopter flies over the Galaxy Leader cargo ship in the Red Sea in this photo released November 20, 2023. Houthi Military Media/Handout via REUTERS/File Photo

Dubai, United Arab Emirates — The IMF and World Bank warned on Monday that the Gaza war and the related attacks on shipping through the Red Sea pose threats to the global economy.

The Israel-Hamas war raging since October has already hit the Middle East and North Africa region’s economy, said the International Monetary Fund’s managing director Kristalina Georgieva.

READ: TotalEnergies no longer sending ships through Red Sea

Its knock-on effects could impact the world the longer the fighting drags on, Georgieva told the World Governments Summit, an annual gathering of business and political leaders in Dubai.

“I fear most a longevity of the conflict because, if it goes on and on, the risk of spillover goes up,” she said.

“Right now we see a risk of spillover in the Suez Canal,” she said, as Yemen’s Iran-backed Huthi rebels have attacked Red Sea shipping leading to the crucial maritime passage.

The Huthis say they are targeting what they consider Israeli-linked shipping in solidarity with Palestinians in Gaza, pushing some cargo carriers to take longer and more expensive routes to avoid attacks.

The UN Conference on Trade and Development warned late last month that the volume of commercial traffic passing through the Suez Canal had fallen more than 40 percent in the previous two months.

READ: How could Red Sea attacks affect oil and gas shipping?

Georgieva said that if there are other “consequences in terms of where the fighting goes, it could be more problematic for the world as a whole”.

On a personal note, she added that “as a woman, as a mother, grandmother… I pray for peace”.

The Gaza Strip has been under intense Israeli assault for over four months, in retaliation for the October 7 Hamas attack on southern Israel.

Hamas’s unprecedented attack resulted in the deaths of about 1,160 people, mostly civilians, according to an AFP tally based on official Israeli figures.

Israel vowed to destroy the militant group and launched air strikes and a ground offensive that have killed at least 28,340 people, mostly women and children, according to the health ministry in the Hamas-run territory.

Despite the war-related uncertainties, Georgieva said the IMF is “very confident that the world economy is now poised for this soft landing we have been dreaming of”.

“I expect to see by mid-year interest rates going in the direction inflation has been going for the last year now,” she said, when asked about interest rates being cut in leading economies.

Also speaking at the summit, World Bank President Ajay Banga said that “what’s going on Gaza, but also the challenges of Ukraine… and the Red Sea” are among the top challenges to the global economic outlook.

When “you add these variables to what is already turning out to be probably the lowest growth of the last 35, 40 years…that’s something we’ve got to keep a close eye on,” he said.