Goldman Sachs expects the war in Gaza to have a significant impact on economic growth and inflation in the euro zone unless energy price pressures are contained.
European economic analyst Katya Vashkinskaya confirmed in a research note that continued escalation could affect European economies through a decline in regional trade, tightening financial conditions, rising energy prices and a decline in consumer confidence.
Although the tensions could affect European economic activity through a decline in trade with the Middle East, Vashkinskaya highlighted that the European continent's trade exposure is limited, given that the Eurozone exports about 0.4% of GDP to Israel and its neighbours. While British trade exposure is less than 0.2% of GDP.
However, it indicated that tighter financial conditions could affect growth and exacerbate the current pressure on economic activity due to rising interest rates in both the euro zone and the United Kingdom. However, Goldman Sachs does not see a clear pattern between financial conditions and previous bouts of tension in the Middle East.
Vashkinskaya said that the most important factor that may have an impact and through which tensions can spread to the European economy is through oil and gas markets. She said: Since the outbreak of the current conflict, commodity markets have witnessed increasing volatility, with Brent crude and European natural gas prices rising by about 9% and 34% at peaks, respectively.
