The outbreak of war in Ukraine, as well as the complex conflict in… The Middle East In the wake of the war between Israel The Hamas movement, the conflict between Israel and Iran, and the Israeli strikes on Lebanon highlight the extent to which these geopolitical developments constitute a major factor in determining global economic performance, along with other wars and conflicts, as well as the trade divide.
These risks reflect tangible manifestations of conflicts that undermine economic stability and deepen financial and economic crises, as these conflicts – with their repercussions on supply chains and rising prices of basic commodities – impose structural challenges to economic growth, which creates more obstacles to confronting their direct and indirect repercussions. Direct exposure to various sectors and economic indicators.
No sooner had the world recovered from the Corona pandemic and its severe economic consequences, than the bells of war rang in Ukraine on February 24, 2022, at a turning point, after which the details of the economic scene differed greatly from those before it. After the Russian military operation – as the Kremlin calls it – caused widespread disruptions in global supply chains, leading to structural imbalances in global markets. Ukraine and Russia are considered major grain suppliers, in addition to the position that Moscow occupies in energy markets, which has made the repercussions of the conflict between the two countries go beyond regional borders to affect the entire global economy.
High energy prices resulted in an increase in production and transportation costs, which cast a shadow over the prices of goods and services and consequently increased inflation rates in many countries. This rising inflation, coupled with supply chain disruptions, led to a slowdown in economic growth and an increase in unemployment rates, deepening the global economic crisis, and leading central banks to adopt a policy of monetary tightening to curb runaway inflation over a period of more than two years, a policy that has gradually begun to bear fruit. Finally, at varying rates.
While the world is still reeling under the weight of the widespread impact of the war in Ukraine, another conflict broke out in a region extremely important for international trade, which is the Middle East. It began with the war between Israel and the Hamas movement since October 7, 2023, putting the world before “extremely complex” scenarios, especially If the circle of conflict and regional war scenarios expand.
The war between Israel and Hamas in Gaza added another dimension to the global economic crisis by threatening regional stability in the Middle East, which is reflected in global financial and commercial markets, especially since the tensions in this vital region lead to sharp fluctuations in oil prices, which increases the situation. Uncertainty in global markets discourages foreign direct investments. In addition, tensions in the Red Sea have led to higher costs for commercial risk insurance and shipping (risk premiums), which increases transportation and logistics costs and creates further barriers to global trade.
In this context, and amid “volatile prospects,” International Monetary Fund reports confirm the predicament of the global economy under the weight of geopolitical crises, which weaken economic growth around the world. Growth expectations in the Middle East and North Africa indicate 2.7 percent for the current year and 4.2 percent for 2025, and in advanced economies 1.7 percent in 2024 and 1.8 percent in 2025.
As for global growth, the Fund expects growth of 3.2 percent for 2024 and 3.3 percent for 2025 (less than the average since the beginning of this century until the outbreak of Corona).
According to World Bank data, issued at the beginning of this year, as the middle of this decade approaches, which was scheduled to witness transformative effects on development, the global economy is expected to record “unfortunately” rates of GDP growth by the end of 2024, the lowest and slowest. In a period of 5 years over 30 years.
Consequences of global division
In addition, the “global economic division and fragmentation,” in light of the widely escalating geopolitical risks, threatens to cause the global economy to lose up to 7 percent of global GDP ($7 trillion), according to Gita Kupinath, Deputy Director of the International Monetary Fund.
This division – which was fueled by the war in Ukraine – is due to various political and economic factors that divided the world into two main camps. Eastern, led by Russia and China, and Western, led by the United States of America and Europe, amidst intense competition, in light of a new structure on the horizon for the international system, and the transformation from a unipolar system to a bipolar or multipolar system, according to World Bank advisor, Mahmoud Anbar, who says: This division has broad economic consequences, especially in light of each party using its tools to pressure the other party, including, for example, the tariff war and the broader trade war.
This conflict resulted in many blocs adopting special strategies to enhance cooperation between member states in confronting other parties.
These effects interact with an unstable security and geopolitical situation, which represents a broader confusion of the scene, and contributes to a significant escalation of risks in light of the current state of international polarization and its confusing repercussions on the scene of wars and crises around the world.
International Monetary Fund estimates, which were mentioned by Gita Kupinath (Deputy Director of the Fund) before the end of last year, estimate the damage resulting from the global division at a loss of up to 2.5 percent of the gross product, or the equivalent of 2.5 trillion dollars, and this percentage may reach 7 percent depending on the capabilities of the Fund. Economies adapt to shifts in global trade with that division or “new cold war.”
According to a study by the Institute of Economics and Peace, conflicts and acts of violence around the world cost the overall economy $17.5 trillion in purchasing power, equivalent to 12.9 percent of output in 2022, an increase of 6.6% over the year 2021, due to the fueling of the war in Ukraine.
Redirecting state budgets
The director of the International Center for Economic and Development Studies, Sadiq Al-Rikabi, says that since the war in Ukraine up to the recent tensions in the Middle East, the intensity of conflicts and wars has increased, causing the world to lose about 19 trillion dollars (..), which are huge sums that could have been invested in areas Vital areas such as education, health, infrastructure, and other various areas of development.
- According to the Global Peace Index, the global economic impact of violence has risen to $19.1 trillion in 2023, or $2,380 per person, representing 13.5% of global GDP.
- According to the Lloyd’s of London Insurance Market Authority, any geopolitical conflict that harms supply chains could cause losses to the global economy amounting to 14 trillion and 500 billion dollars over a period of 5 years.
Al-Rikabi explains that these tensions contributed to redirecting the budgets of some countries and allocating huge sums of money to defense and purchasing weapons at the expense of budgets allocated to development projects (..) In addition, wars have contributed to the destruction of basic infrastructure in many regions of the world and deprived their people of roads. Schools, hospitals and public services.
- Global military spending reached record levels of $2.44 trillion last year 2023, a year that witnessed the largest annual increase (6.8 percent) in government spending on weapons in nearly a decade, according to data from the Stockholm Peace Research Institute, issued last April. .
- Reflecting the growing conflicts, threats and geopolitical tensions, the data recorded a collective increase in military spending in the five main geographical regions.
He says that while spending on armaments is rising, the poverty rate in countries whose residents live in conflict zones has risen to 34.8 percent, as the numbers of displaced people have increased, and people have been forced to leave their jobs and resources, which requires huge investments that will be spent on finding solutions to these problems. Instead of spending it to achieve sustainable development.
He also confirms that if regional tensions continue to rise, we may witness new conflicts expanding to new regions of the world, pointing out that this will have negative repercussions, including negatively affecting global supply chains, in addition to a loss of investor confidence as their investments decline.
He adds: “International conflicts and wars have increased pressure on the main resources of countries, raised the prices of goods and services, and inflation rates have also increased,” explaining that the rate of global public debt is expected to rise to reach 93 percent of global gross domestic product by the end of this year, 2024. This threatens to increase the number of people living in poverty globally (…).
Future scenarios
Al-Rikabi asserts that if global tensions rise and the pace of international cooperation declines, development will be the first victim, and countries will be facing a new period of negative data that will affect the performance of the global economy and decline with it the ability of governments to overcome crises.
He notes that regional disputes and conflict over resources will undoubtedly lead to a decline in government spending on sustainable development, including the education, health, and service sectors. He explained that this will lead to:
- Decline in the rate of international trade: These conflicts may contribute to deepening the state of international division and obstructing global trade as they obstruct supply chains and increase transportation and shipping costs in addition to the rise in commodity prices and shortages.
- Economic disturbances: Countries affected by the conflict will face many economic turmoil that will force them to reduce government expenditures and increase borrowing amid rising costs and declining investments, which will hinder economic growth in conflict areas.
The Director of the International Center for Economic and Development Studies confirms that the impact of wars and conflicts in general will be negative on human and economic development, and the extent of their extent cannot be predicted. If the current conditions continue, it will be difficult to achieve sustainable development, or to monopolize it in certain regions of the world.
Recovery factors
In this context, Mazen Arshid, a researcher in economic affairs, points out that one of the most prominent effects of geopolitical tensions is the rise in oil prices, as any disturbance in the East Asia region leads to an immediate increase in prices.
He points out that in the year 2023, oil prices reached about $90 per barrel as a result of escalating risks and tensions, which led to an increase in operational costs for companies and a weakening of the purchasing power of consumers, explaining that these pressures represent a blow to global economic growth, as estimates indicate that rising energy prices It contributed to reducing the global growth rate by about 0.5 percent during 2023.
In addition to the above, global supply chains suffer from the impact of wars and conflicts, which leads to the disruption of trade and the transportation of goods. For example, the conflict in Ukraine led to a shortage of grains and raw materials, which particularly affected developing countries that depend on imports.
It is reported that, according to the World Bank, the global cost of food has risen by 15 percent in 2023, which has exacerbated food poverty in many regions around the world, stressing that this pressure on advanced and emerging economies hinders the achievement of sustainable development goals and reduces the ability to invest. In education, health, and infrastructure.
He also confirms that there is still hope for recovery, noting that this recovery depends on several key factors, including:
- There must be geopolitical stability, as reaching peaceful solutions in conflict areas will be a decisive factor in calming markets and restoring confidence to investors.
- There should be stimulating economic policies at the level of major countries, such as increasing spending on infrastructure and promoting free trade. For example, after the global financial crisis in 2008, stimulus policies by governments and central banks contributed to the recovery of the global economy within a relatively short period.
Recovery is also linked to technological innovation and the transition to renewable energy sources. Increased investment in clean energy may help reduce dependence on oil and gas, which will mitigate the impact of any conflict in traditional energy production areas.
Political factors
In context, the decisions and political approaches of governments directly affect the global economy. The possibility of Donald Trump once again reaching the White House, for example, and with his protectionist policies, may lead to the imposition of additional tariffs on imports, which could increase trade tensions with China and the European Union.
The American economy, as the largest economy in the world, has its weight in the movement and rate of global trade, so Trump’s preference for the policy of bilateral agreements at the expense of multilateral agreements may lead to complications in global trade, which reduces the benefits that countries reap.
