The impact may take time to become clear and would depend on several factors.
Hundreds have died as fighters from the Hamas movement invaded from their Gaza enclave and Israel responded in force.
The impact may take time to become clear and would depend on how long the conflict lasts, how intense it becomes, and whether it spreads to other parts of the region. “Any source of economic uncertainty delays decision-making, increases risk premia, and especially given that region…there is an apprehension about where oil is going to open,” said Carl Tannenbaum, chief economist with Northern Trust.
For central banks it poses the dilemma of whether it is likely to lead to new inflation pressures – the region is not just home to major oil producers like Iran and Saudi Arabia, but also to major shipping lanes through the Gulf of Suez – or deal such a blow to confidence that the economy stutters. “The conflict poses a risk of higher oil prices, and risks to both inflation and the growth outlook,” said Karim Basta, chief economist at III Capital Management, leaving the Fed to sort out whether higher prices or slower growth is the greater concern.
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