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A Spiraling Israel-Hamas War Could Plunge The Global Economy Into Recession And Depress The Stock Market By 20%, Warns EY Economist

A spiraling Israel-Hamas war could plunge the global economy into recession and depress the stock market by 20%, warns EY economist

A spiraling Israel-Hamas war could plunge the global economy into recession and depress the stock market by 20%, warns EY economist

Even companies without a Middle East presence could be affected by an “uncontained” war in the region. Aris Messinis—AFP via Getty Images Good morning, Peter Vanham here in Geneva. The Israel-Hamas war has deeply divided societies around the world, including many companies and institutions . But as the Israeli offensive in Gaza intensifies, companies will have to shift gears from talking about the conflict and its impact on employees to dealing with its economic ramifications. Those could be so severe that they could plunge the world back into a recession, cause oil prices to surge to $150, and depress stock prices by some 20%, EY -Parthenon’s chief economist Gregory Daco told me. Even companies that have no business in the Middle East would then be caught in its economic fallout. “If your market is 90% U.S.-based, in the Midwest, why should you care about the [conflict]? Well, you will have to care because it will have consequences that will affect your business,” Daco said. “Depending on how diffuse the situation becomes, the consequences could go from very marginal to significant.” The hypothetical situation outlined above, which Daco dubbed the “uncontained” scenario, includes a widening of the front to Lebanon and Syria, direct involvement of the U.S. and Iran, and wider social unrest in the Middle East. That outcome isn’t more likely than a more contained scenario, which would limit the war to a ground offensive in Gaza and have almost no long-term global economic consequences. Still, CEOs better take all possibilities into account as they plan ahead. The prospect of long-term economic consequences also points to a definitive end to the days in which multinational companies could simply forecast economic growth, trade, and manufacturing costs for their global markets. They must also factor in the constant threat of disruptive forces like political and social turmoil and war. “Reshoring” and “nearshoring” can provide relief from possible trade disruptions resulting from the Middle East conflict in the Strait of Hormuz or the Suez Canal, but no one can run away from rising oil prices, inflation, a recession, or a drop in the stock market. “Resilience” and “geostrategy” are my nominees for the buzzwords of 2023. More news below. Peter Vanham @petervanham TOP NEWS Cruise loses a safe harbor California’s Department of Motor Vehicles abruptly ordered Cruise–the autonomous driving unit of General Motors–to take its robotaxis off of state roads months after approving the self-driving cars. The agency cited an “unreasonable risk to public safety,” including one incident in which an autonomous vehicle struck a pedestrian. GM lost $723 million on Cruise last quarter. Reuters Microsoft earnings Microsoft reported better-than-expected results on both its bottom- and top-lines as the tech company’s investment in AI begins to pay off. The company generated $56.5 billion in revenue last quarter, a 13% year-on-year jump. Microsoft hopes AI will be its next big source of growth; it invested $10 billion in ChatGPT developer OpenAI at the beginning of the year. Fortune Giving up on China Japanese car company Mitsubishi announced its withdrawal from China. The company’s local partner, the Guangzhou Automobile Group, will take over its operations. The company expects to lose $162 million from its China retreat. Foreign car manufacturers from Japan and Germany are now facing stiff competition from China’s domestic brands, particularly in the EV space. Nikkei Asia AROUND THE WATERCOOLER 1-800-Flowers CEO shares how he made his first billion—and the best business advice he received from JPMorgan CEO Jamie Dimon by Ruth Umoh The standard American household is now a millionaire, according to the Federal Reserve by Orianna Rosa Royle Billionaire CEO of the biggest owner of commercial real estate says remote employees ‘didn’t work as hard’ by Paolo Confino Spotify CEO Daniel Ek says he couldn’t have built the platform if he came up with it today—and he’s blaming Apple by Ryan Hogg Meta is being sued by a majority of U.S. states for allegedly fueling the national youth mental health crisis. Parents don’t have to wait for a verdict to intervene by Alexa Mikhail Chinese retailers are already slashing the prices of the iPhone 15 by over $100 amid reports of a sluggish launch for Apple’s latest smartphone by Lionel Lim This edition of CEO Daily was curated by Nicholas Gordon. This is the web version of CEO Daily , a newsletter of must-read insights from Fortune CEO Alan Murray. Sign up to get it delivered free to your inbox.

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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