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IMF warns of long-lasting economic impact of Gaza war on Middle East

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The IMF has warned that the Israel-Hamas war is likely to have a long-lasting impact on the Middle East and north Africa, as its managing director said that Gaza’s economy was “wiped out”.

In its latest regional economic assessment, the Fund said it expected growth in the Middle East and north Africa region and Pakistan to be a “lacklustre” 2.6 per cent in 2024, down from 3.3 per cent in its previous forecast.

Kristalina Georgieva, head of the IMF, pinned the blame on the “uncertainty” triggered by political turmoil.

“Gaza’s economy is wiped out, it’s more than 80 per cent gone. The West Bank is also severely impacted,” she said during a speech in Washington on Thursday.

The Middle East had been one of the bright spots in the global economy in the immediate aftermath of the pandemic, but that optimism reversed last year.

Hamas’s October 7 attack on Israel killed 1,200 people, according to Israeli officials, and triggered the war in Gaza that has killed more than 33,000, according to Palestinian officials.

The conflict has rippled across the region, with Iran launching its first-ever direct attack on Israel this weekend in retaliation for an Israeli strike on the Iranian consulate in Syria.

Tourism in the Levant area has been badly hit by the war, with travellers cancelling trips to neighbouring countries such as Jordan and Lebanon, while the heightened geopolitical risk has clouded investment decisions in the wider region.

Attacks by Houthi rebels on ships in the Red Sea have disrupted trade routes, and traffic through the Suez Canal — a significant source of revenue for Egypt — has plummeted.

The IMF calculates that the cost of transporting a container from China to the Mediterranean Sea has quadrupled from $1,000 to $4,000 since the Gaza war’s onset.

Georgieva said Jordan and Egypt’s economies had proven more resilient than Lebanon’s — though both had received additional financial assistance from the IMF.

There is a sharp divergence between more fragile Middle East nations and wealthy Gulf oil exporters, who are more insulated from the shocks than their neighbours.

While non-oil economic activity is increasing as countries including Saudi Arabia and the United Arab Emirates diversify their revenues, voluntary oil cuts and lower oil prices had slowed their economic growth in real terms this year, the IMF said.

“The real issue is the erosion of stability, and this level of increasing risks could jeopardise the medium-term outlook for the region,” Jihad Azour, director of the IMF’s Middle East and Central Asia department, told the Financial Times, saying that the disruption to trade could have a prolonged impact.

He warned that the level of unemployment was “still high at the youth level in the region, among the highest worldwide”, while growth was “below the historical average”.

The war could also threaten the region’s economic bounceback from the Covid-19 crisis, the IMF said. Growth in the region last year was 1.6 per cent, according to the Fund, after Covid-related lockdowns and repercussions from the Ukraine conflict hit many economies in the Middle East. Azour stressed that the “recovery is mild, with a lot of caveats”. 

Georgieva also highlighted the “terrible” situation in Sudan and Yemen, saying highly visible wars in Ukraine and Gaza had “overshadowed the pain and suffering that is happening in other places”. She said all those countries were benefiting from the IMF’s “support and attention, as difficult as conditions may be”.

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