How long will it take for the global economy to recover?

SadaNews - The global economy is witnessing the features of a complex phase of rebalancing, as the shocks of war leave long-term effects that do not cease with the end of conflicts but rather persist for varying periods, impacting economic growth forecasts.

In this context, policymakers are facing a dual dilemma between containing rising inflation waves and maintaining a coherent growth pace, at a time when pressures on fragile economies are increasing, and the gap in impact is widening between countries according to their ability to absorb shocks.

This comes amid open scenarios ranging from crisis containment to slipping into prolonged disruption that revives the risks of stagflation.

The Managing Director of the International Monetary Fund, Kristalina Georgieva, provides insight into the potential implications of the current conflict on the global economy even if an agreement is reached, stating that "the war will lead to rising inflation and slowing global growth."

In her remarks - which Reuters quoted earlier - as they come ahead of the release of new global economic forecasts, she notes that:

"All roads now lead to rising prices and slowing growth."

"The war has reduced global oil supplies by 13 percent, affecting oil and gas shipments and related supply chains such as helium and fertilizers."

"Even if hostilities end quickly and a relatively swift recovery occurs, it will lead to a slightly downward revision in growth forecasts and an upward revision in inflation forecasts. She stated that if the war continues for a long time, its impact on inflation and growth will be greater."

Poorer and weaker countries facing risks and lacking energy reserves will be the most affected.

Many countries do not have sufficient financial resources to help their populations cope with the price increases resulting from the war.

The war has caused the worst disruption to global energy supplies ever; production of millions of barrels of oil has stopped due to Iran's effective closure of the Strait of Hormuz, through which one-fifth of global oil and gas production passes.

Georgieva states that even if the conflict resolves quickly, the fund is expected to lower its growth forecasts and raise its inflation forecasts.

According to Reuters, the war is expected to dominate the spring meetings of the International Monetary Fund and the World Bank in Washington next week, where financial officials from around the world will attend.

The IMF is expected to release a set of forecasts in its upcoming report "World Economic Outlook" scheduled for April 14. The fund had referred to the possibility of lowering its expectations in a blog post dated March 30, attributing it to the uneven shock of the war and tightening financial conditions.

Effects

For his part, the CEO of V I Markets, Dr. Ahmed Maati, tells "Sky News Arabia":

The recovery of the global economy after crises and wars does not happen immediately, but rather goes through several phases and intertwined criteria that vary in duration according to the magnitude of the effects on supply chains and the energy sector.

The first phase of recovery is logistical in nature.

The resumption of shipping and transport may take at least a month, especially given that ships stopped during periods of escalation, and the need for time to reorganize the transfer of goods through vital corridors such as the Strait of Hormuz.

The second phase relates to the recovery of the energy sector.

The significant damages to facilities, according to estimates by the International Energy Agency, may require about three months of maintenance to restart the damaged capacities and restore production levels.

He emphasizes that recovery from inflationary effects is the relatively longest phase, as it may extend from three to six months, due to the prolonged impacts of rising energy prices on production costs and consumer behavior, which in turn reflects on demand and spending rates.

Maati confirms that these combined factors mean that a full recovery of the global economy will require a longer period in light of the continuing indirect effects on markets, businesses, and individuals.

The 1970s Scenario

A report by thetimes indicates that the risks of war in the region on the global economy are "worse than the 1970s," after the conflict resulted in a loss of oil supplies greater than that of 1973 and 1979 combined, reviving the specter of stagflation.

The report adds:

The source of the collateral economic damage in the war is well known: the Strait of Hormuz, which is a choke point in the global maritime transport network, and its effective closure.

According to the International Energy Agency, the magnitude of this disruption, measured by the amount of supplies lost from goods, makes this war larger than the crises of 1973 and 1979 combined.

Analysts at HSBC wrote in a memo to clients: "The global economy is facing the largest disruption of global oil supplies in history."

The initial rounds of economic data that took the war into account were as expected: inflation is high, growth is low, and companies and consumers are concerned.

Recovery Path

For his part, the chief market analyst at FXPro, Michel Sleibi, tells "Sky News Arabia":

Economic recovery after wars does not happen immediately, but goes through several phases varying in duration based on the size of the war, its nature, and its impact on supply chains and the energy sector.

These factors play a crucial role in determining the speed of recovery.

The short term, extending up to six months, may see a relatively rapid return of the markets if the war stops, with a rebound in energy prices, but they remain relatively high, amid ongoing supply chain disruptions and the dominance of uncertainty.. This phase is characterized by sharp fluctuations without actual recovery.

In the medium term, between six to eighteen months.. a gradual recovery begins, especially if geopolitical risks are contained, as oil and gas production gradually returns, inflation declines, and central banks may begin to ease their monetary policies, which boosts growth and restores confidence in the markets.

As for the long term, from one and a half to three years.. full recovery becomes more likely, with the return of investments and a revival of global trade, benefiting from the momentum of reconstruction, especially in infrastructure and energy sectors, despite the possibility of structural changes in the global economy, especially in supply chains and economic power balances.

He clarifies that the speed of recovery will remain contingent on several key factors, the most prominent being developments in energy prices, the extent of damages inflicted on infrastructure and supply chains, central bank policy directions, levels of government spending and reconstruction, in addition to the degree of geopolitical stability in the post-war phase.