Leading economists gathered in Marrakech, Morocco, on Tuesday for the International Monetary Fund's annual conference. Their message was clear: The world economy is beginning to slump as fissures between East and West widen.
"The global economy is limping, not sprinting," IMF Chief Economist Pierre-Olivier Gourinchas told reporters on Tuesday.
The IMF predicts that global economic growth will slow in 2024 to 2.9% from this year's 3%. It says that downturn is in part due to the emergence of geopolitical blocs, stifling free trade across the globe.
Moscow's invasion of Ukraine in 2022 played a large part, the IMF says, noting that over the past 20 months, the West has issued unprecedented sanctions on the Kremlin and has shifted away from relying on China.
Analysts say the war between Israel and Iran-backed Hamas insurgents could further expand the rift between East and West — and disrupt commerce in the Middle East, boosting the cost of oil worldwide. Oil prices have already soared in the fallout of Moscow's invasion of Ukraine.
"It's a humanitarian tragedy and it's an economic shock we don't need," World Bank President Ajay Banga told Reuters on Tuesday.
The fact that many of the biggest oil producers in the region, including Saudi Arabia and the U.A.E., have not come out in support of Hamas indicates that those countries are unlikely to restrict exports — at least for now, analysts say.
But oil prices have already jumped by about 4% over the past few days as the bloody conflict unfolds in Gaza.
It's "too early" to know how the violence in Israel will affect economies abroad, Gourinchas said.
Uncertainty seemed to be a theme throughout the conference. The world has learned over the past three years to expect the unexpected. "[I]t's too early to jump to any conclusions here," Gourinchas said, cautioning against panic.
But if the fighting in Israel drags on, he said, the cost of oil could rise by 10%, global economic growth could take a 0.15% hit, and inflation could hike 0.4%.
The world economy has shown "remarkable resiliency," Gourinchas noted, in part because the U.S. Federal Reserve and central banks across the globe have brought up interest rates to hold back inflation.
The goal of that, economists say, is a soft landing: keeping unemployment low and stabilizing living expenses. Gourinchas said the strategy has been successful so far.
The IMF expects the U.S. economy to grow by 2.1% this year and 1.5% next year — a significant increase from the 1% it originally forecast.
While oil prices have been on the rise across the globe, the U.S. economy has fared better than European countries. Economists believe that is because European consumers have spent more conservatively in the post-pandemic era.
The eurozone's economy — the group of 20 European countries whose official currency is the Euro — is predicted to grow by a meager 0.7% this year and 1.2% in 2024, the IMF said. Even the German economy — among the largest in the West — is expected to decline this year.
The Chinese economy, second only to the U.S., is forecasted to expand by 5% this year and 4.2% next year. Those figures are downgrades from the IMF's predictions just months ago.
Global trade, the IMF said, will grow only 0.9% this year and 3.5% in 2024. In the 2000s and 2010s, the yearly average was 4.9%.
Some information for this report was provided by the Associated Press and Reuters.
