The World Bank’s economists have warned of devastating effects on the global economy amid escalation in the Middle East after the UK and US conducted airstrikes on Houthi sites in Yemen, The Guardian reported.
The escalating tension is likely to reignite inflation and disrupt energy supplies along with higher interest rates, lower growth and greater geopolitical uncertainty, it added.
The US and UK conducted airstrikes in Yemen twice in recent days resulting in growing concerns in both countries about the prospects for economic recovery amid global supply disruption and the spread of the war in the Middle East.
UK’s Prime Minister Rishi Sunak will on Monday (tomorrow) face MPs about a prolonged conflict and the longer-term plan for Middle East peace.
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US President Joe Biden also faced pushback from members of his own party, who were already opposed to US military support for Israeli action in Gaza.
Now, the World Bank said that the crisis along with the war in Ukraine has created real dangers.
“Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation. Other risks include financial stress related to real interest rates, persistent inflation, weaker than expected growth in China, further trade fragmentation and climate change-related disasters,” it added.
The global bank went on to add that the recent attacks on commercial vessels in the Red Sea have disrupted key shipping routes, disturbing supply networks and increasing the likelihood of inflationary bottlenecks.
Meanwhile, economists were also worried that many of the world’s major economies may suffer a recession this year. They fear that central banks will make only modest cuts to borrowing costs, adding to the cost of living crisis faced by millions of households.
Economists at the World Bank also warned of risks to energy supplies being significantly disrupted, that could result in higher energy prices.
“This would have significant spillovers to other commodity prices and heighten geopolitical and economic uncertainty, which in turn could dampen investment and lead to a further weakening of growth,” the World Bank said in its report.
According William Bain, a British trade expert, around 500,000 containers were going through the Suez canal in November and that had dropped 60% to 200,000 in December.
Ships are taking different routes, but that has raised costs, with a container that cost $1,500 in November rising to $4,000 in December.
