New forecasts lay out 2 rocky paths for global economy
Summary
The ongoing conflict in the Middle East is creating two possible scenarios for the global economy: a mild slowdown if the war ends soon, or a severe downturn if it continues and causes more supply disruptions. The Organisation for Economic Co-operation and Development (OECD) warns both paths will slow growth and increase inflation worldwide, highlighting how relying on key supply points makes the economy vulnerable.Key Facts
- The conflict in the Middle East affects global economic growth and inflation in two possible ways depending on how long it lasts.
- A quick resolution would slow global growth slightly, to about 2.8% in 2024, while a prolonged war could reduce growth to as low as 1.8% by 2027.
- Inflation in the Group of Twenty (G20) countries is expected to reach 4% this year, but could rise more if the war continues.
- Economies heavily dependent on Middle Eastern energy, especially many in Asia, would be hit hardest if the conflict drags on.
- The U.S. economy is expected to grow about 2% in 2024, helped by strong investments in artificial intelligence (AI) and spending by wealthier households.
- AI investment boosts the economy but also increases dependence on energy, semiconductor chips, and shipping routes, which are vulnerable to disruptions.
- If the conflict lasts, AI investment and economic growth may weaken, and central banks might have to raise interest rates even as growth slows.
- Governments may need to use fiscal policy (government spending and taxes) to support their economies, but rising debt and defense costs limit their options.
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