Australian Treasurer Jim Chalmers has cautioned his global counterparts that an escalation of war in the Middle East poses a threat to the global economy, with no country immune to the economic repercussions of increased bloodshed on economic growth and inflation.
According to The Sydney Morning Herald, Chalmers spoke at a meeting organized by the International Monetary Fund in Washington, stating that the Middle East conflict could impact Australia's anticipated decrease in inflation rates and the alleviation of cost-of-living pressures.
As investors and economists grow increasingly concerned about the escalation of war in the Middle East, particularly the fear of a direct conflict between Israel and Iran, oil and gold prices have recently surged.
Iron ore prices, however, have fallen below $100 per ton due to the pressure of weak demand from China on the market.
Chalmers stated that the soft economic landing anticipated by most global economists and policymakers this year is at risk due to the growing military tensions in the Middle East.
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He mentioned that while the world focuses on the humanitarian costs, the unstable global outlook indeed poses a significant threat to the economy.
Chalmers bluntly stated, "No one will escape the economic consequences of an escalation of war in the Middle East."
"Conflict is the greatest risk to our progress since the depths of COVID, and while the conflicts in Europe and the Middle East have different origins, their consequences are very similar."This week, the International Monetary Fund (IMF) noted in its semi-annual World Economic Outlook that the risks brought by global conflicts are increasing.
"The escalation of regional conflicts, especially considering the broader conflicts in the Middle East or the war in Ukraine, could further disrupt trade, leading to sustained increases in food, energy, and other commodity prices."
"Fluctuations in commodity prices could lead to rising inflation, particularly for countries that import commodities, and limit the policy maneuvering space of central banks."
The Fund expects Australia's inflation rate to fall to 3.3% next year, which is significantly higher than the Reserve Bank of Australia's forecast, which predicts an inflation rate of 2.8% by June 2025.
Data to be released next week is expected to show that inflationary pressures have eased over the past three months, partly due to the sharp decline in oil prices since mid-year. Some economists predict that the annual inflation rate will fall within the Reserve Bank's 2-3% target range for the first time in three years.
Chalmers stated that an escalation of the war in the Middle East could lead to "persistent inflation" worldwide. However, Liberal Party leader Peter Dutton said that the government must be held accountable for inflation and compared Australia's interest rate settings with those of other countries.
New Zealand's official interest rate has been reduced to 4.75%, a country that has experienced a recession over the past 15 months, while Canada has a cash rate of 3.75% after unemployment soared to 6.5%.
Dutton said that increased government spending is adding to debt, jeopardizing the country's official credit rating.
Last month, the rating agency S&P Global maintained Australia's AAA credit rating, while noting that budget deficits and net debt will remain moderate over the next two years.
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