The ongoing intensification of Israeli military operations in Gaza is posing a significant threat to the global economic recovery, potentially suppressing growth and causing spikes in energy and food prices. This situation comes at a time when countries worldwide are still recovering from the economic fallout of the COVID-19 pandemic and Russia's invasion of Ukraine.
Indermit Gill, the World Bank's chief economist, highlighted the simultaneous impact of two energy crises - one resulting from the war in Ukraine and another from the conflict in the Middle East. Both conflicts have driven up oil and gas prices, eroding the buying power of households and corporations. Additionally, higher energy prices have increased food production costs, exacerbating food insecurity in developing nations such as Egypt, Pakistan, and Sri Lanka.
Countries are already grappling with unusually high levels of debt, lackluster private investment, and the slowest trade recovery witnessed in half a century. Despite declining inflation and stabilized oil prices seen recently, higher interest rates resulting from central banks' efforts to curb inflation have made access to credit more challenging for governments and firms. These developments are hampering efforts to stimulate growth and recover from the crisis.
Leading international financial institutions and private investors have issued warnings about a potential downturn in the fragile economic recovery due to these factors. The world is now facing an economic landscape fraught with challenges as it struggles to rebound from multiple crises.
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