Red Sea crisis not yet having ‘significant’ impact on global economy – IMF
The Houthi rebel attacks on vessels in the Red Sea have had a significant impact on insurance and shipping rates, but have so far not affected global economic growth prospects, Kristalina Georgieva, the managing director of the IMF, said in an interview with the Washington Post this week.
“It adds pressure on prices, but not yet to the point that our projections for inflation globally will be corrected upwards,” the IMF chief said, adding that “for now, this has implications, but not of the magnitude that would significantly derail growth projections for the world economy.”
She noted that in January 2024, traffic through the Suez Canal, a critical maritime trade route connecting the Mediterranean Sea to the Red Sea, plunged by nearly a half versus last January. However, according to Georgieva, the impact of this drop in traffic is more “localized,” and most severe for Egypt, which relies on revenues from the waterway traffic and is currently losing roughly $100 million a month.
Still, Georgieva warned that “surprises” like the Red Sea shipping crisis are making long-term growth prospects for the world economy “bleak.” The IMF recently slightly updated its economic projections, and now expects the global economy to grow by 3.1% this year, but, according to Georgieva, this figure is still “weak by historical standards” if compared to the average growth of 3.8% in the decade before the Covid-19 pandemic.
“It is a signal that we are in a more shock-prone world – surprises of this type… mean we have to be in better position to face these repetitive shocks,” she warned, suggesting that fiscal authorities around the world should build “buffers” to withstand crises.
Among such buffers she listed improved strategies of collecting revenues, better spending habits and prioritizing investment in productivity and future growth.
The Yemen-based Houthi rebels have carried out dozens of drone and missile attacks on vessels traversing the Red Sea since the beginning of the Israel-Hamas war in October. As a result, many major shipping companies have stopped using the Suez Canal, redirecting ships around the Cape of Good Hope in southern Africa. Average container prices have reportedly more than doubled globally in the past month, while fuel tanker costs for certain destinations have surged to their highest level in four years.
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