The International Monetary Fund (IMF) has issued a stark warning about the devastating impact of the year-long conflict between Israel and Hamas on the Palestinian economy. The conflict has resulted in a near collapse of the Gaza Strip’s economy, with an estimated 86 percent drop in GDP during the first half of 2024.
Julie Kozack, the IMF’s communications chief, painted a grim picture of the situation in Gaza, highlighting the dire socioeconomic conditions faced by the civilian population, a deepening humanitarian crisis, and inadequate aid delivery. The West Bank, already grappling with economic challenges, has also suffered a significant setback, with a 25 percent decline in GDP during the same period.
Beyond the immediate impact on the Palestinian territories, the escalating tensions in the Middle East are adding to the global economic uncertainty. While policymakers celebrate their success in navigating the world out of high inflation without triggering a recession, the conflict throws up new challenges.
The immediate effects on the global economy are mainly confined to financial markets. Investors are seeking safe havens, driving up the value of the U.S. dollar. Oil prices have also risen due to concerns that a wider conflict could disrupt oil supplies from the region, particularly if Israel targets Iranian oil infrastructure, potentially triggering retaliation. However, analysts believe the price increases are unlikely to translate into sustained, significant hikes that consumers will feel at the pump. The U.S. has ample crude oil reserves, and OPEC nations have enough spare capacity to manage any short-term disruptions.
Israel’s economy has also taken a hit from the war, with three major rating agencies downgrading its debt. While Israeli GDP rebounded in the first quarter of 2024 after a sharp decline in the previous quarter, growth slowed considerably in the second quarter.
The IMF also expressed concerns about the situation in Lebanon, where the conflict is exacerbating the country’s already fragile economic and social conditions. The daily exchanges of fire between Israel and Hezbollah across the Lebanon border since the Hamas attack in October 2023 have added to the region’s instability.
The conflict has resulted in tragic loss of life. Over 41,000 Palestinians have been killed in Gaza, with over half being women and children, according to local health officials. Lebanon has reported over 2,000 deaths. The ongoing conflict continues to cast a long shadow over the region, posing significant challenges to the economy and the well-being of its people.
