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OECD Outlook: Significant Risks to Global Economy if Hamas-Israel Conflict Expands

OECD expects inflation to gradually decline to 5.3 percent next year in its member countries (dpa)
OECD expects inflation to gradually decline to 5.3 percent next year in its member countries (dpa)
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OECD Outlook: Significant Risks to Global Economy if Hamas-Israel Conflict Expands

OECD expects inflation to gradually decline to 5.3 percent next year in its member countries (dpa)
OECD expects inflation to gradually decline to 5.3 percent next year in its member countries (dpa)

The Organization for Economic Cooperation and Development (OECD) reduced its forecast for global GDP growth to 2.9 percent in 2023 while keeping next year's forecast unchanged.
It warned that the worsening conflict between Israel and Hamas in the Gaza Strip could undermine the economy.
According to the estimates of the Paris-based institution, "If the conflict escalates and spreads to the entire region, the risks of growth slowdown and increased inflation will be much greater than they are now."
The Organization noted that the war has had a relatively limited impact on the global economy, noting that international growth would slow to 2.7 percent in 2024 from an expected 2.9 percent pace this year.
OECD Chief Economist Clare Lombardelli explained in the report that the obstacles holding back the economy are not coming from the Middle East and that tight financial conditions, weak trade, and low confidence all have grave consequences.
"Global growth is set to remain modest, with the impact of the necessary monetary policy tightening, weak trade, and lower business and consumer confidence being increasingly felt."
Consumer price inflation is expected to gradually ease towards central bank targets in most economies to 5.3 percent next year, compared to 7.4 percent this year.
GDP growth in the US is projected at 2.4 percent in 2023 before slowing to 1.5 percent in 2024. In the euro area, GDP growth is projected to be 0.6 percent in 2023 before rising to 0.9 percent in 2024 and 1.5 percent in 2025.
Lombardelli stated that the "pace of growth is uneven."
China is expected to grow at a 5.2 percent rate this year before growth drops to 4.7 percent in 2024 and 4.2 percent in 2025 due to ongoing stresses in the real estate sector and continued high household saving rates.
The Organization pointed out that if the war in the Middle East intensifies and expands, the impact of its transition on the global economy may be mainly through oil and gas prices.
It indicated that a ten percent rise in the price of a gas barrel may lead to an increase in global inflation by 0.2 points in the first year and a decrease in growth by 0.1 points.
Trade may be significantly affected, especially since two international trade routes, the Strait of Hormuz and the Suez Canal, are within the conflict zone.

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Oil Prices Steady as Markets Weigh Demand against US Inventories

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
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Oil Prices Steady as Markets Weigh Demand against US Inventories

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)

Oil prices were little changed on Thursday as investors weighed firm winter fuel demand expectations against large US fuel inventories and macroeconomic concerns.

Brent crude futures were down 3 cents at $76.13 a barrel by 1003 GMT. US West Texas Intermediate crude futures dipped 10 cents to $73.22.

Both benchmarks fell more than 1% on Wednesday as a stronger dollar and a bigger than expected rise in US fuel stockpiles pressured prices.

"The oil market is still grappling with opposite forces - seasonal demand to support the bulls and macro data that supports a stronger US dollar in the medium term ... that can put a ceiling to prevent the bulls from advancing further," said OANDA senior market analyst Kelvin Wong.

JPMorgan analysts expect oil demand for January to expand by 1.4 million barrels per day (bpd) year on year to 101.4 million bpd, primarily driven by increased use of heating fuels in the Northern Hemisphere.

"Global oil demand is expected to remain strong throughout January, fuelled by colder than normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays," the analysts said.

The market structure in Brent futures is also indicating that traders are becoming more concerned about supply tightening at the same time demand is increasing.

The premium of the front-month Brent contract over the six-month contract reached its widest since August on Wednesday. A widening of this backwardation, when futures for prompt delivery are higher than for later delivery, typically indicates that supply is declining or demand is increasing.

Nevertheless, official Energy Information Administration (EIA) data showed rising gasoline and distillates stockpiles in the United States last week.

The dollar strengthened further on Thursday, underpinned by rising Treasury yields ahead of US President-elect Donald Trump's entrance into the White House on Jan. 20.

Looking ahead, WTI crude oil is expected to oscillate within a range of $67.55 to $77.95 into February as the market awaits more clarity on Trump's administration policies and fresh fiscal stimulus measures out of China, OANDA's Wong said.