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The Israel-Gaza war will result in more economic jitters for an “already anxious world”, Kristalina Georgieva, chief of the International Monetary Fund, said on Wednesday.
“We are concerned first and foremost about the epicentre of the war, the tragic loss of lives, but also the destruction and the reduction of economic activity,” the fund's managing director told the Future Investment Initiative in Riyadh.
The “chains of the impact” are already visible in neighbouring countries such as Egypt, Lebanon and Jordan, Ms Georgieva said, adding that the uncertainty could “kill” tourist revenue inflows.
“Investors are going to be shy to go to that place, [while the] cost of insurance, if you want to move goods, [will] go up,” she said.
The Israel-Gaza war, which has become a major humanitarian crisis, has created further uncertainty for a global economy that is feeling the effects of stubborn inflation and high borrowing costs.
On October 7, Hamas, the ruling group in Gaza, attacked southern Israel, killing about 1,400 people and taking more than 200 hostages.
Israel has retaliated with air strikes and total siege of the Palestinian enclave, with the death toll exceeding 5,700.
The war is happening at a time when “growth is slow, interest rates are high, [and] the cost of servicing debt has gone up”, Ms Georgieva said.
Earlier this month, the IMF kept its global economic growth projection for this year at 3 per cent, slower than the 3.5 per cent expansion recorded in 2022, remaining below the historical growth average.
For 2024, the fund expects the global gross domestic product to expand by 2.9 per cent, a 0.1 percentage point downgrade from the fund’s forecast in July for next year.
Central banks have unleashed the steepest interest rate increases in decades in an effort to control soaring inflation following Russia’s invasion of Ukraine last year.
“We want to see normalisation of monetary policy over time, so we're not thrilled with going from zero to five so quickly,” Ms Georgieva said.
“And now that we are here, our call to everybody is to buckle up [and] make sure that you understand that higher interest rates are here for longer,” she added.
Last week, US Federal Reserve chairman Jerome Powell suggested that the central bank was inclined to hold interest rates steady again at its November meeting while leaving open the possibility of an increase later if policymakers detect further signs of resilient economic growth.
The Fed has raised interest rates 11 times to its current range of 5.25 per cent to 5.5 per cent in an effort to rein in price increases without driving the economy into a recession.