By: Dr. Lynn Reaser
As conflict rages in Iraq, questions are developing regarding not only political stability in the region but what will be the impact on the global economy. The Middle East is always one of the primary risks facing the economic outlook and the current situation is clearly a threat.
Even if world oil production is not substantially affected, fears of future supply disruption have already pushed prices higher. Those price increases will dampen household purchasing power and raise productions costs for many firms. Stock prices, already at levels vulnerable to a downturn, could drop as investors become anxious over a splintering of Iraq. Gasoline price hikes are one of the most damaging factors affecting consumer confidence. Further gains in the dollar, favored as a safe haven, could impede U.S. exports.
On balance, at a minimum, recent developments could challenge the consensus forecast of stronger economic growth in this year’s second half.
Image Credit: The Energy Spot