According to experts at Goldman Sachs, the eurozone countries may suffer from further inflation growth amid the rising geopolitical tension, namely, the escalation of the Israel-Palestine conflict.
The ongoing hostilities in the Middle East could considerably impact the eurozone economy. At present, all the countries in the region are experiencing difficulties. The European regulator is facing more and more obstacles in its fight against galloping inflation.
In addition, the situation is further exacerbated by the fact that GDP growth has been rather slow owing to a moderate rise in energy prices. Europe has to strike a balance between economic problems and the growing threat of geopolitical conflict.
A continuation of the Israel-Hamas conflict could boost pressure on consumer prices and trigger another inflation spike.
Experts at Europe Economics suppose that military actions in the Middle East may force the ECB to tighten its monetary policy in the future. In other words, the key interest rate may increase. However, a spike in energy prices poses the biggest risk for the European economy.
“Since the current conflict broke out, commodities markets have seen increased volatility, with Brent crude oil and European natural gas prices up by around 9% and 34% at the peak respectively,” an analyst at Europe Economics said.
“Oil prices could soar to a record high of more than $150 a barrel if the war between Israel and Hamas leads to a repeat of the full-scale conflict in the Middle East witnessed 50 years ago,” the World Bank has warned. In the worst-case scenario, the global energy market may see oil prices surge to $157 per barrel. This could become possible if the global oil supply drops by 6–8 million barrels a day, which is comparable with the Arab oil boycott in 1973.
