The ongoing conflict between Israel and Hamas could lead to an unexpected surge in inflation, according to Alfred Kammer, the Director of the European Department at the International Monetary Fund (IMF). During a press conference in Brussels on Thursday, Kammer explained that this conflict has already led to a 10% increase in prices, which is impacting energy costs across Europe.
Kammer’s warning came during a Brussels-based media conference where he discussed the potential impacts of the Middle East conflict on European economies. While he acknowledged that the initial effects have been minimal, future repercussions will depend on the duration and severity of the conflict. Investors are currently on high alert, anticipating potential oil price hikes and their subsequent inflationary consequences.
Earlier on Wednesday, European Commission Vice President Valdis Dombrovskis reported that despite an unexpected GDP contraction and current economic weakness, Europe’s economy is predicted to rebound modestly next year. He stated that euro-area inflation has eased to its lowest level in over two years as of October.
Despite the energy shocks from conflicts and geo-economic fragmentation, Kammer emphasized Europe’s economic resilience. He stated that if the conflict continues as is, the impact on Europe is expected to remain limited. The IMF does not predict a eurozone recession but foresees a period of flat growth in 2023, followed by a lackluster recovery in 2024. He also highlighted the toll of the European Central Bank’s 10 back-to-back rate hikes on households and firms.
The conference also marked the release of the IMF’s newest Regional Economic Outlook report for Europe.
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