A global sigh of relief!

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A global sigh of relief!

Thursday, January 09, 2020

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Lovers of peace are breathing a sigh of relief that neither the United States nor Iran has declared war after Iranian ballistic missile strikes, Tuesday, on two Iraqi bases housing US troops, in retaliation for the US killing of top Iranian General Qassem Soleimani last week.

Clearly, both countries understand the implication for an all-out war that would cost countless lives and further decimate the Iranian economy, while threatening the robust US economy, especially in an election year.

Importantly, the consequences for the global economy would be dire, reversing the positive outlook for world economic growth in 2020.

Morgan Stanley's 2020 Global Macro Outlook forecasts a recovery in global gross domestic product (GDP) growth from 2.9 per cent to 3.4 per cent. But there was a caveat: “Should additional tariffs be enacted, we think global growth could decelerate further.”

And that did not factor in a new war.

Moreover, with rates already low, central banks around the world will be more limited than before to respond to any global shocks, said Morgan Stanley. It also projects that, while the US economy continues to “sit on stable ground, its pace of growth may slow down”.

The International Monetary Fund (IMF) World Economic Outlook predicts global growth of three per cent, but that is down from 3.2 per cent from its previous forecast. For Iran specifically, the IMF expects its economy to shrink by almost 10 per cent because of US sanctions.

Any war in the Middle East is certain to force up oil prices, which usually carry a sting in the tail, in respect of a vicious upward spiral in the cost of goods and services across the world.

Predictably, commercial airlines are re-routing flights throughout the Middle East to avoid potential danger from the heightened tensions between the US and Iran.

“Jumbled schedules could affect as many as 15,000 passengers per day, lengthen flight times by an average of 30 to 90 minutes, and severely bruise the bottom line for airlines, industry analysts said,” according to a wire service dispatch from the Associated Press (AP).

In a war situation, the first casualty is always air transport, AP quoted Dubai-based aviation consultant Mark Martin as saying, pointing to airline bankruptcies during the Persian Gulf and Yugoslav wars. At least 500 commercial flights travel through Iranian and Iraqi airspace daily, AP said.

The situation is exacerbated by the uncertainties surrounding the crash of a Ukrainian passenger jet shortly after taking off from Iran's capital yesterday, killing 167 passengers and nine crew members, which came just hours after Iran's ballistic missile attack.

The Jamaican economy, with its high dependence on the US market and oil imports, is extraordinarily vulnerable to external shocks. The soft underbelly of the vital tourism industry could be further exposed.

There is no positive scenario coming out of another war at this time, except for the military complex of the combatants, as more scarce resources are depleted and more blood is shed, leading to greater anger and a thirst for vengeance.

We expect that Jamaica's position in any international forum, including the United Nations, would reflect the country's well known position on the use of diplomacy to resolve differences between and among countries.

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