Experts: If Europe, US enter recessions, Middle Eastern economies will suffer

Middle East and North African economies will suffer if the US and Europe enter recessions later this year, experts warned.

Eran Peleg, chairman of the Tel Aviv-based Clarity Capital, a wealth management firm, told The Media Line that a Western economic recession would have regional implications. “Economies are increasingly global” and highly correlated, he explained.

In the West, both policymakers and economic institutions are increasingly concerned that European and American recessions loom.

Early last week, for example, US Treasury Secretary Janet Yellen acknowledged in a CBS News interview that an American recession is “not completely off the table,” even though it has a strong and resilient economy.

HSBC Asset Management, a global wealth management firm, said that many countries face “flashing red” recession warnings. Last month, it warned that the US is likely to enter a recession in the fourth quarter of 2023, followed by a “year of contraction and a European recession in 2024.”

The knock on reflects of Russia invading Ukraine 

Ken Wattret, vice president for global economics at S&P Global Market Intelligence, told The Media Line that European economic performance and prospects have clearly deteriorated. To blame are “the knock-on effects of Russia’s invasion of Ukraine,” which have driven up energy prices, boosted inflation, and squeezed household incomes.

Europe is even more likely than other regions to enter a recession, Wattret warned. Technically, the eurozone countries—a subset of the EU—entered a recession last winter. Until now, the EU has “avoided the same outcome by a narrow margin.”

Europe’s economy has benefited from some positive trends, including the return of services downgraded during the pandemic.

Still, leading European indicators have weakened of late and that, along with the “ongoing tightening of monetary policy across many European countries,” suggests that the region’s economies may soon dip sharply.

Europe’s recession could either be small or large, Warret says, and this depends largely on inflation. If prices continue to rise, central banks will keep interest rates high in 2024, prompting “negative feedback loops” that could lead to a much deeper and more prolonged recession than last winter’s.

Warret says the key indicators to monitor are labor market performances, housing prices, and credit conditions.

Eran Peleg of Clarity Capital says Middle Eastern and North African countries would be impacted by a European and American recession through trade and capital flows.

How will this impact Israel?

Israel, he pointed out, is highly dependent on technology exports. If the US enters a recession, demand for technology products will drop, hitting Israeli exports and its broader economy.

Middle Eastern oil exporters, in turn, could be hurt by weakening global demand for oil.

Ralf Wiegert, Middle East and North Africa director for S&P Global Market Intelligence, told The Media Line that oil-exporting countries may also cause economic problems.

“Saudi Arabia could lead OPEC and double down on production cuts,” he warned, saying this would boost oil prices and deepen inflation.

The impact of higher oil prices would be felt most keenly in Europe, Wiegert said. The US, by contrast, might also benefit, as it too exports oil.

Middle East and North African countries that do not export oil will suffer from declines in tourism and demand for agricultural products, car parts, and fertilizers.

Peleg says that capital flight to the US is also a potential problem. If US interest rates continue to rise, investors may shift funds from developing markets in the Middle East and North Africa to America.

Given a global economy, Peleg said, if “Europe and the US, two large economies, grow weak, it impacts pretty much everyone else.”