IMF Warns That Escalation of Middle East Conflict Poses Significant Economic Risks, According to Reuters

By David Lawder

WASHINGTON – The International Monetary Fund (IMF) warned on Thursday that an escalation of the conflict in the Middle East could have serious economic implications both for the region and the global economy, although commodity prices remain below last year’s peaks.

IMF spokesperson Julie Kozack expressed serious concern over the situation in southern Lebanon during a regular news briefing, extending condolences for the lives lost.

"The potential for further escalation in the conflict heightens risks and uncertainty, which could have significant economic ramifications for the region and beyond," Kozack stated.

While it is too soon to make specific predictions about global economic impacts, Kozack noted that the region’s economies are already experiencing severe distress, particularly in Gaza, where the civilian population is enduring extreme socioeconomic challenges, a humanitarian crisis, and a lack of adequate aid.

According to the IMF, Gaza’s GDP is estimated to have decreased by 86% in the first half of 2024, while the West Bank likely saw a 25% decline during the same period, with further deterioration anticipated. Israel has experienced about a 20% contraction in GDP during the fourth quarter of 2023 due to the conflict, with only a slight recovery noted in the first half of 2024.

The IMF is set to update its economic forecasts for all nations and the global economy later this month, coinciding with the organization’s fall meetings in Washington.

Kozack pointed out that the recent intensification of conflict in Lebanon worsens an already fragile macroeconomic and social landscape, specifically citing Israel’s airstrikes targeting the Hezbollah militant group.

"The conflict has caused significant humanitarian tolls and has damaged the country’s infrastructure," she said.

The potential global economic impacts from the conflict are primarily through increased commodity prices, particularly for oil and grains, and higher shipping costs as vessels reroute to avoid missile threats from Yemen’s Houthi militants in the Red Sea. However, current commodity prices are lower compared to their highs over the past year.

"We emphasize that we are closely monitoring the situation, which is of great concern and marked by high uncertainty," she added.

Lebanon reached a staff-level agreement with the IMF in 2022 regarding a potential loan program, but progress on necessary reforms has been insufficient, according to Kozack.

"We are prepared to engage with Lebanon on a potential financing program when conditions are more favorable, but this requires decisive policy actions," she noted. "In the meantime, we are providing Lebanon with support through capacity development assistance and other available channels."