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Economist Warns Israel-Hamas Conflict Could Spark Global Market Contagion

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“The Israel-Hamas war not only threatens lives and regional stability, but also has the potential to ignite a dangerous chain reaction in the global market, warns a prominent economist.”

As the Israel-Hamas war enters its fourth week, economist Mohamed el-Erian warns of the increasing risks to the global economy. The conflict escalated on Monday, with the Israeli military widening its ground offensive in Gaza in response to terror attacks by Hamas. El-Erian, the chief economic advisor at Allianz, believes that the longer the fighting continues, the higher the chance of it escalating into a regional conflict with implications for global financial markets. He states that this conflict amplifies the existing challenges facing the global economy, including stagnating growth, high inflation, and market fragmentation.

Initially, the impact on global markets was limited as investors believed the conflict was contained. However, the possibility of regional spill-over involving other players like Iran and Lebanon has increased market unease. Oil prices have been particularly volatile due to concerns about supply restrictions in the energy-rich region. While they surged on Friday after Israel expanded its ground operation, prices dipped on Monday as investors awaited the Federal Reserve’s monetary policy meeting.

Kristalina Georgieva, the head of the International Monetary Fund, describes the Israel-Hamas conflict as another cloud on the horizon for the already gloomy economic outlook. She anticipates negative impacts on trade channels, tourism, and insurance costs.

The conflict also jeopardizes Israel’s ambitions to normalize diplomatic ties with Arab neighbors like Saudi Arabia. El-Erian believes that as the conflict persists, the prospects for regional cooperation become bleaker and more pressing. The president of the World Bank, Ajay Banga, shared similar sentiments, stating that peace talks in the Middle East will take time to resume and hinder progress towards a more peaceful region.

Overall, the Israel-Hamas conflict poses significant economic risks, and its continuation could have far-reaching implications for the global economy.

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