Vantage | Will Israel-Hamas war lead to a global recession?

The global economy is currently facing a turbulent period with a series of significant geopolitical events casting a shadow of uncertainty over financial markets and economies worldwide. These events include the Wuhan Virus pandemic, the Russia-Ukraine war and the Israel-Hamas conflict. As these crises continue to unfold, people are increasingly asking a critical question: Is a recession imminent?

Wall Street giants’ perspective Prominent figures in the world of finance are expressing concerns about the likelihood of a recession. Among them are two influential voices: Larry Fink, the chief executive of BlackRock and Jamie Dimon, the head of JP Morgan, America’s largest bank. Their statements shed light on the economic consequences of the current geopolitical climate. Larry Fink, Chief Executive of BlackRock, stated, “Rising fear creates a withdrawal from consumption or spending more. So fear creates recessions in the long run.” This sentiment reflects the idea that uncertainty and fear in the face of global conflicts can lead to reduced consumer spending and investments, eventually contributing to economic downturns. Impact of geopolitics The link between geopolitical events and economic stability is evident. Major economies around the world are being affected and these issues are not limited to one region. There are currently 32 active war zones globally involving various forms of conflicts such as civil wars, drug insurgencies and ethnic fighting. These conflicts, though devastating on a local scale, can have varying degrees of impact on the global stage. Significant wars and their global impact Two specific wars, the Russia-Ukraine conflict and the Israel-Hamas conflict, stand out due to their substantial global implications. • Russia-Ukraine conflict: Both Ukraine and Russia are major food producers with Russia also playing a crucial role in energy production. These commodities, food and fuel are essential for the global economy. However, due to the war their prices have increased affecting the world economy. • Israel-Hamas conflict: While neither side in this conflict produces oil, they are located near oil-producing nations like Saudi Arabia and Iraq. As a result of this proximity and ongoing tensions, oil prices have surpassed $85 per barrel impacting consumers globally. Economic realities The consequences of these geopolitical conflicts are being felt across major economies. ~ The United Kingdom has already seen a 0.5 per cent contraction in its GDP in the June quarter and experts predict another contraction in the September quarter. ~ The Eurozone, comprised of 20 European countries, experienced a 0.1 per cent drop in GDP in the September quarter. ~ The United States is witnessing a rise in unemployment, with the rate increasing from 3.4 per cent in April to 3.9 per cent in October. Additionally, China is facing challenges, as foreign investment turned negative for the first time, with investors pulling out more money than they invested. Way forward The current state of the global economy is precarious and prolonged conflicts could potentially lead to a global recession and economic meltdown. The unfortunate reality is that these conflicts are avoidable and primarily driven by political objectives rather than humanitarian urgencies. In the last century, world leaders emphasized “just wars” that were meant for the greater good. However, the conflicts in Ukraine and the Israel-Hamas situation do not align with these principles. These wars are primarily driven by political motives and can be resolved through diplomatic means rather than armed conflicts. It’s crucial to remember that wars should be the last resort, not the first response. Normalising conflict can lead to its spread with dire consequences for the global economy. The key to economic stability lies in resolving these issues through dialogue and cooperation. As the world watches these conflicts unfold, the hope remains that diplomatic solutions will prevail over prolonged, destructive wars. The global economy’s well-being depends on it. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.