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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and Gramercy
Israel’s recent strike on Iran has sent shockwaves through the global economy, adding to existing fragility. The attack poses risks to growth and inflation, at a time when fiscal and monetary tools for response are limited.
The extent of the impact will depend on the scale and duration of the attack and subsequent retaliation. Market reactions have been negative, with oil prices spiking over 5% to around $70 a barrel. This comes amidst a backdrop of rising stagflationary pressures and heightened uncertainty.
Global growth projections have been revised downwards by the World Bank, citing a slowing economy and warning of the slowest decade of growth since the 1960s. Central banks are now closely monitoring inflation, potentially delaying interest rate cuts. Fiscal responses may also be constrained by high interest rates and investor concerns over deficits.
The UK faces particular economic challenges, with the Spending Review highlighting the importance of growth amid potential tax hikes. The global economy could see indirect repercussions from the Middle East turmoil, further eroding the existing economic order and fostering fragmentation.
The impact on the global financial landscape is also notable, with US Treasuries and the dollar showing a measured response. As the global economic order undergoes shifts, countries may seek to reduce their reliance on the dollar, leading to further financial recalibrations.
In conclusion, the recent events in the Middle East present additional challenges to an already precarious economic environment, emphasizing the need for resilience and adaptability in the face of geopolitical uncertainties.