Global growth to be hit if Gaza conflict disrupts oil supply: Fitch

Global gross domestic product (GDP) growth would be 0.4 percentage point (pp) lower in 2024, but only 0.1 pp lower in 2025, although the absence of a significant rebound suggests there could be a persistent moderate impact beyond the initial shock, it noted in a release.

The rating agency’s September Global Economic Outlook (GEO) assumes average oil prices of $75 a barrel (bbl) and $70/bbl in 2024 and 2025 respectively.

Using simulations from the Oxford Economics Global Economic Model, the Fitch scenario assumes that due to supply restrictions, oil prices will average $120/bbl in 2024 and $100/bbl in 2025.

Higher oil prices would dampen GDP growth in almost all the ‘Fitch 20’ economies, although the impact would largely dissipate in 2025.

The absence of a significant growth rebound in 2025 implies a longer-lasting, if generally moderate, impact on GDP levels in most countries, which could affect assessments of potential growth, Fitch said.

The negative growth impact in 2024 relative to Fitch’s September GEO forecasts ranges from 0.1 pp in Indonesia to 0.9 pp in South Korea. The United States, the eurozone and Japan see impacts of 0.5 pp.

The largest impacts among the main emerging market countries would be in South Africa and Turkiye (0.7 pp). Russia, and to a much lesser extent Brazil, would see a positive impact due to the important role of oil production in these economies.

Higher oil prices would lead to higher-than-expected inflation rates in 2024, followed by corrections in 2025. Turkiye sees the highest percentage point rise in forecast inflation, followed by India and Poland. However, the India and Poland’s relative increases would be much larger.

Among developed economies, the impact would be more muted, with the United States witnessing inflation rates around 2 pp higher than forecast by 2024 end, Canada a moderate increase (0.4 pp) from the baseline and other advanced economies’ inflation higher by an average 1.4 pp.

The inflation impact would be short-lived and partly offset by lower-than-forecast inflation rates in 2025. Brazil and Mexico are outliers, with higher inflation in 2025.

An oil price shock related to the Middle East conflict could be accompanied by tighter financial conditions, lower business and consumer confidence, and corrections in financial markets, Fitch added.

ALCHEMPro News Desk (DS)