Ms Gopinath emphasised that many countries around the world are still fighting inflation.
The Israel-Gaza war can have “important consequences” on the global economy, especially since it has come at a time when many countries across the world are fighting inflation, the International Monetary Fund’s Gita Gopinath has said.
In an exclusive conversation with The Hindkesharion Saturday, the First Deputy Managing Director of the IMF said that if the war becomes a regional conflict and sees the involvement of more countries, it could impact oil prices, causing an increase in inflation and an adverse effect on world GDP.
“It is really heartbreaking to see what is happening there in terms of the loss of civilian lives. It is terrible. In terms of economic consequences across the rest of the world, a lot depends upon how this conflict changes over a period of time. So if it becomes a regional conflict, it can have important consequences. If I was to point to one, it would be the impact on oil prices,” Ms Gopinath said.
“Our estimate is that if you have a 10% increase in oil prices, then that reduces world GDP by 0.15 percentage points and raises inflation by 0.4 percentage points, And given that many countries around the world are still trying to bring inflation down, that would add to their challenges,” she added.
Ms Gopinath pointed out that the war could also lead to migration issues and affect tourism in the region,
“I think it is too early at this point to know what may happen but we are watching the events very closely.”
Circling back to her earlier point, the senior IMF official said that the rise in oil prices and its impact on inflation will remain the main concerns in terms of the economic fallout of the war.
“We are concerned about volatility in fuel prices and we have seen gas prices go up quite a bit in Europe because of damage to a particular gas pipeline. Like I said, the big concern is that countries are fighting inflation,” she said.
“Headline inflation was coming down for many countries. If it goes back up in an environment where you have had high inflation for a while, that can set into inflation expectations and make it harder for central banks to win the fight against rising prices,” Ms Gopinath emphasised.
Over 3,700 people have been killed in the Israel-Hamas conflict, which entered its eighth day on Saturday. Israel asked 1.1 million people in Gaza to move south on Friday and Israeli tanks remain massed on the border, adding to speculation of an imminent invasion.