Further conflict put paid to the hope of a roaring twenties return

Updated: 14 November 2023
Jonathan Andrew
Jonathan Andrew
Global Chief Executive

As we hurtle towards the festive period, figures released by the British Retail Consortium this week show consumer confidence and household spending are as damp as the UK weather. Ahead of the latest GDP figures – set to be released tomorrow (10 November) - Bloomberg analysis suggests the UK economy is likely already in recession, with similar concerns growing across Europe.

Almost a quarter of the Spanish population have anxiety over the cost-of-living crisis according to newspaper El País and radio network SER, and Germany is predicted to face its biggest economic slump in years. Meanwhile, in France, amid tighter monetary policy, GDP growth slowed considerably in Q3.

These dim findings are only set to worsen as the humanitarian crisis in the Middle East continues or – worryingly – escalates.

The human tragedy of this conflict, of course, must remain front and centre of our thoughts, and at the heart of the international response.

The economic implications too, however, are wide ranging and require consideration from governments and businesses alike. Alongside the pandemic and war in Ukraine, it reflects another significant geopolitical blip on a decade tipped to be the second “roaring twenties”, a time of technological advancement, (relative) economic prosperity and social change.

Instead, reduced trade, higher energy prices and even lower consumer demand are all distinct possibilities over the coming months as the effects of the conflict take hold.

In fact, its impact is already being seen. Month-on-month, the Baltic Dry Index – a barometer of international trade measuring changes in the cost of transportation of raw materials – has fallen more than 23 per cent. Further, according to the World Bank, after two weeks of conflict, natural gas prices increased by a whopping 35 per cent, with oil prices rising 7 per cent.

Unquestionably, this will further exacerbate global inflation, which is estimated to have reached 6.9 per cent in 2023 – the highest annual increase since 1996.

So, as governments continue to leverage monetary policy as a means of controlling rising prices, more and more they are contending with a game of ‘economic Whac-A-Mole’ as new issues arise that threaten to undo inflation-tackling measures.

The rising cost of commodities is only part of the puzzle. Trade flows between the UK, Europe and Israel are strong and total trade with Palestine is not inconsequential, with vehicles and pharmaceuticals both key exports, and medical and food products top imports from the region.

Not only, therefore, is there an horrific human impact of this conflict, there are also a host of negative multiplier effects which threaten to impact supply chains and households around the world.

Though this wider impact may not be immediately apparent as existing stock levels remain, undoubtedly as these deplete over the coming months, businesses will once again feel the pinch of higher costs, and supply chain disruption.

So, as the residual impacts of Covid-19 - one generational issue – start to Peter-out, new challenges emerge amid an already volatile geopolitical picture.

It’s those businesses that remain alert to such issues and proactively manage costs and supply chains that will be best placed to weather the storm, for what is shaping up to be yet another long, ongoing conflict.