FX.co ★ Global economy may face economic contagion

Mohammed El-Erian, the chief economic advisor at Allianz, warns that the global economy might face an "economic contagion." This scenario may come true if the military conflict in the Middle East between Israel and HAMAS, a Palestinian radical group, escalates. El-Erian likens the current global economy to a gravely ill patient for whom finding the right medication is a challenge. Many economic and financial minds are pondering the solution, yet an answer remains elusive. According to El-Erian, the risks of this financial contagion have escalated with the onset of hostilities in the Middle East. "The longer this conflict goes on, the more likely it will escalate," he asserted. The economist noted that in a worst-case scenario, we could see a faster slowdown in global GDP growth and a sharp increase in inflation. Moreover, as geopolitical tensions in the Middle East intensify, the global economy could face widespread market fragmentation. "This conflict, in a way, amplifies all of the challenges that existed and that were already significant," El-Erian said. Thus, the geopolitical turmoil highlights all the vulnerabilities of the financial system. Ana Boata, the head of economic research at Allianz Trade, has also voiced concerns about the risks of a slowdown in global economic growth against the backdrop of the escalating Middle Eastern conflict. According to Boata, if hostilities in the region intensify, the global GDP could face a recession. This is further aggravated by the high likelihood of rising oil prices up to $140 per barrel and increasing inflationary pressure.