A global recession could be set in motion by the conflict in the Middle East as the humanitarian crisis compounds the challenges facing an already precarious world economy, two of Wall Street’s biggest names have warned.
The downbeat comments come as the City braces for another gloomy update on the UK economy, with the Office for National Statistics due to provide an update on how it fared during the third quarter on Friday.
After barely growing during 2023, the UK economy is again expected to be almost at a standstill, according to estimates by City economists. There are also new downbeat figures on the housing market, with UK mortgage lending predicted to show decade-low growth during 2023 and 2024.
In terms of the global economy, Larry Fink, chief executive of the world’s largest asset manager, BlackRock, said a combination of the Hamas atrocities of 7 October, Israel’s resultant attack on Gaza and Russia’s invasion of Ukraine last year had pushed the world “almost to a whole new future”.
In an interview with the Sunday Times, Fink said: “Geopolitical risk is a major component in shaping all our lives. We are having rising fear throughout the world, and less hope. Rising fear creates a withdrawal from consumption or spending more. So fear creates recessions in the long run, and if we continue to have rising fear, the probability of a European recession grows and the probability of a US recession grows.”
Jamie Dimon, the chair of America’s biggest bank, JP Morgan, also told the same newspaper that the combination of Israel’s war on Hamas and Russia’s invasion of Ukraine – were “quite scary and unpredictable”.
“What’s happening on the geopolitical front right now is the most important thing for the future of the world – freedom, democracy, food, energy, immigration,” he said.
The comments come three weeks after similar apocalyptic remarks from Dimon, who is one of the world’s best known financiers. Last month, he warned that it was “the most dangerous time the world has seen in decades”, with the escalating conflict potentially having “far-reaching impacts” on energy prices, food costs, international trade and diplomatic ties.
The negative Wall Street sentiment concerning the global economy is also being echoed elsewhere. Last week, the Economist published a leader article entitled: “The world economy is defying gravity. That cannot last.”
One of the reasons the conflict between Israel and Hamas is seen as posing a global economic threat is the world’s reliance on the region’s oil, which accounts for a third of the market. Economists often fear that spikes in the oil price can trigger global recessions.
The economy’s weak performance means the threat of recession is already hanging over the UK. Last week, the Bank of England said in its monetary policy report: “UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the [Bank’s] August report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than projected previously.”
Meanwhile, UK mortgage lending is expected to record decade-low growth in 2023 and 2024, the EY ITEM Club is predicting. The economic forecaster expects mortgage loans in 2023 to rise by 1.5% net in 2023 – and 2% net in 2024 – representing the lowest growth over a two-year period in a decade. It blamed the sluggish market on high mortgage rates, subdued economic growth and weakening housing market sentiment.
Anna Anthony, EY’s UK financial services managing partner, said the UK is “still on track to avoid recession this year” but the economic environment remains challenging. “Significant cost-of-living pressures continue to affect households’ ability to spend, and an increasing number are finding it difficult to keep up with loan repayments.”