Gaza Conflict and Red Sea Attacks Pose Economic Risks

International financial institutions warned this week that the ongoing conflict in Gaza and attacks on shipping in the Red Sea could have global economic consequences if tensions continue.

In remarks at the World Government Summit in Dubai, IMF Managing Director Kristalina Georgieva said “The months-long fighting between Israel and Hamas militants has already impacted countries in the Middle East and North Africa. Prolonged conflict raises the risk of spillover effects on the world economy,” she cautioned.

Georgieva specifically cited potential disruptions to shipping through the Suez Canal. Yemen’s Houthi rebels, who are supported by Iran, have been attacking vessels they deem linked to Israel in solidarity with Palestinians. This has led some carriers to take longer, more expensive routes to avoid becoming targets.

Trade statistics show the volume of traffic through the Suez Canal has plunged over 40% in recent months. “Disruptions to this critical passage could reverberate more widely,” Georgieva said. On a personal note, she added that "as a woman, as a mother, grandmother... I pray for peace".

The Gaza war broke out last October after a major Hamas attack on southern Israel. What began as Israeli airstrikes and a ground offensive has killed over 28,000 Palestinians over four months, mostly civilians.

Despite the uncertainties of the conflict, Georgieva said the IMF still expects a “soft landing” for the world economy this year. But World Bank President Ajay Banga identified the fighting in Gaza and shipping attacks as variables that could worsen an already tepid global growth 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," Banga said.

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