Signs that global economic growth could take a serious hit due to US-Iran war are mounting

Signs that the global economy is suffering from the fallout of the US-Iran war are growing, with the OECD saying in its latest outlook that the global economy could face its worst slowdown in 40 years outside of the pandemic and the 2009 financial crisis if geopolitical tensions and disruptions continue into next year.

Under a prolonged disruption scenario, OECD expects global growth to come in at 2.1% in 2026 and 1.8% in 2027 — a significant downgrade from its earlier projection of 3.1% growth next year. It also expects several economies to potentially tip into recession if disruptions persist.

The energy shock is doing most of the damage. Crude oil prices rose more than 50% in the weeks following the outbreak of fighting, with gas prices spiking sharply across Europe and Asia and distillates — including jet fuel and diesel — surging alongside them.

Global inflation could be 0.4 percentage points higher this year and 1.3 points higher in 2027 in a prolonged disruption scenario.

At the same time, mns are at risk of losing their jobs in the EU, Bloomberg reports. As many as 560k jobs could be cut this year due to the energy costs, while 600k jobs are already under pressure in the automotive industry.

All of these data points are putting policymakers between a rock and a hard place. OECD expects some rate hikes this year, followed by rate cuts next year, in its scenario where the conflict resolves soon.

The developing world is already acting fast despite the difficult balancing act of reining in inflation while preventing economic harm. At least 10 emerging- and frontier-market central banks have raised rates since fighting began in late February, including Indonesia, Rwanda, South Africa, and Sri Lanka, Bloomberg reported elsewhere.

As for the US Federal Reserve, some Fed policymakers are pushing for rate increases, saying they might be necessary to rein in mounting inflation. The Fed is widely expected to leave its benchmark interest rate in the 3.50-3.75% range at its policy meeting in two weeks, but some traders are already placing a more than 60% chance that a rate hike could come in July.

MARKETS THIS MORNING-

Asian markets opened lower, tracking losses felt across Wall Street a day earlier as a fresh wave of attacks across the Middle East spooked investors. South Korea’s Kospi is down some 2%, while Japan’s Nikkei is looking at losses of 1.8%. The Shanghai Composite and Hang Seng are also in the red.

THE CLOSING BELL-

The DFM fell 0.8% yesterday on turnover of AED 708.9 mn. The index is down 6.0% YTD.

In the green: National Cement Company (+3.6%), Emirates Reem Investments Company (+3.0%), and Mashreqbank (+2.5%).

In the red: Agility The Public Warehousing Company (-5.0%), Talabat Holding (-4.8%), and BHM Capital Financial Services (-4.7%).

Over on the ADX, the index fell 0.4% on turnover of AED 970.7 mn. Meanwhile, Nasdaq Dubai was down 0.8%.