Domino Effect: Europe and US Recessions Could Impact Middle Eastern Economies
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Hashim Sheikh
- . July 19, 2023
- . Update: July 19, 2023 7:34 pm
Experts have warned that the economies of the Middle East and North Africa will suffer if the US and Europe experience recessions later this year.
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A Western economic recession would have regional repercussions, according to Eran Peleg, chairman of the wealth management company Clarity Capital in Tel Aviv. He stated that “economies are increasingly global” and “highly correlated.”
Economic institutions and policymakers in the West are growing more concerned that recessions in the United States and Europe are imminent.
For instance, despite having a robust and resilient economy, US Treasury Secretary Janet Yellen acknowledged in an interview with CBS News early last week that a recession in the US is “not completely off the table.”
Global wealth management company HSBC Asset Management claimed that many nations are experiencing “flashing red” recession warnings. It forewarned last month that the US is likely to experience a recession in the fourth quarter of 2023, which will be followed by a “year of contraction and a European recession in 2024.”
The fallout from Russia’s invasion of Ukraine
According to Ken Wattret, vice president for global economics at S&P Global Market Intelligence, the performance and prospects of the European economy have declined. The culprits are “the knock-on effects of Russia’s invasion of Ukraine,” which increased energy costs, stoked inflation, and reduced household incomes.
Wattret cautioned that Europe is even more likely than other regions to experience a recession. Technically, the EU member states that make up the eurozone went into recession last winter. The EU has “avoided the same outcome to this point by a narrow margin.”
The return of services that were downgraded during the pandemic is one trend that has helped Europe’s economy.
However, recent declines in leading European indicators, coupled with the “ongoing tightening of monetary policy across many European countries,” raise the possibility of a sharp decline in the region’s economies.
According to Warren, the size of Europe’s recession will largely depend on inflation. If prices rise further, central banks will maintain high-interest rates in 2024, triggering “negative feedback loops” that could result in a recession that is both deeper and longer lasting than the one experienced last winter.
According to Warren, the most important indicators to keep an eye on are our credit conditions, housing prices, and labor market performance.
A European and American recession would affect Middle Eastern and North African nations through trade and capital flows, according to Eran Peleg of Clarity Capital.
What effect will this have on Israel?
He emphasized that Israel depends heavily on technology exports. Israeli exports and the country’s overall economy would suffer if the US went into a recession because of the decline in demand for technology goods.
The weakening of the global oil demand could also hurt Middle Eastern oil exporters.
According to Ralf Wiegert, director of the Middle East and North Africa for S&P Global Market Intelligence, oil-exporting nations might also result in economic issues.
He forewarned that “Saudi Arabia could lead OPEC and double down on production cuts,” which would increase oil prices and worsen inflation.
According to Wiegert, Europe would be most affected by rising oil prices. In contrast, since the US also exports oil, it might also profit.
Countries in the Middle East and North Africa that don’t export oil will experience a decline in tourism as well as a drop in demand for agricultural products, automobile parts, and fertilizers.
According to Peleg, capital flight to the US is another potential issue. Investors may move money from emerging markets in the Middle East and North Africa to the US if interest rates there rise further.
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If “Europe and the US, two large economies, grow weak, it impacts pretty much everyone else,” Peleg said of the global economy.
