The Economic Implications of the Iran–Israel Conflict and Consequences for the Global Economy
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Abstract
This study presents a comprehensive multi-horizon analysis of the macro economic consequences of recent geopolitical tensions—particularly the Iran–Israel conflict—on the global economy, with focused assessments for developed countries, developing nations, Africa, and Nigeria. The projections are structured into short-term, medium-term, and long-term horizons, integrating macroeconomic indicators, trade dynamics, fiscal stress, and structural transformation. In the short term, the global economy is expected to experience a sharp surge in inflation, a spike in oil prices, and heightened financial market volatility, accompanied by a contraction in global output. For developing countries, currency depreciation and rising import costs drive inflationary pressures, deteriorating current account balances. Sub-Saharan Africa and Nigeria are particularly vulnerable, with inflation surging to 30–35%inNigeria, alongside naira depreciation and a real income decline. Medium-term out comes reflect subdued GDP growth, declining OECD investment, worsening fiscal balances, and elevated debt service burdens (up to 50% of revenue in developing countries, over 80%inNigeria). These pressures increase the risk of social unrest and erode policy buffers. Long term projections suggest opportunities for structural recovery through supply chain reconfiguration, clean energy adoption, and defense-sector investment, with potential GDP growth of 3–4% in Africa and Nigeria. However, this path remains conditional on sustained reforms—particularly in exchange rate management, fiscal transparency, and industrial policy. The paper concludes by outlining policy imperatives cantered on coordinated monetary-fiscal policy, social protection, debt restructuring, investment in energy and food security, and strengthened governance. Ultimately, timely, inclusive, and resilience-focused strategies are essential for cushioning immediate shocks while enabling sustainable, long term economic transformation, especially across Africa and Nigeria.
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