Goldman Sachs says the Israel-Hamas war could have major implications for Europe’s economy

The Israel-Hamas war could have a significant impact on economic growth and inflation in the euro zone unless energy price pressures remain contained, according to Goldman Sachs.

The ongoing hostilities could affect European economies via lower regional trade, tighter financial conditions, higher energy prices and lower consumer confidence, Europe Economics Analyst Katya Vashkinskaya highlighted in a research note Wednesday.

Concerns are growing among economists that the conflict could spill over and engulf the Middle East, with Israel and Lebanon exchanging missiles as Israel continues to bombard Gaza, resulting in massive civilian casualties and a deepening humanitarian crisis.

Although the tensions could affect European economic activity via lower trade with the Middle East, Vashkinskaya highlighted that the continent’s exposure is limited, given that the euro area exports around 0.4% of the GDP to Israel and its neighbors, while the British trade exposure is less than 0.2% of the GDP.

She noted that tighter financial conditions could weigh on growth and exacerbate the existing drag on economic activity from higher interest rates in both the euro area and the U.K. However, Goldman does not see a clear pattern between financial conditions and previous episodes of tension in the Middle East

The most important and potentially impactful way in which tensions could spill over into the European economy is through oil and gas markets, Vashkinskaya said.

“Since the current conflict broke out, commodities markets have seen increased volatility, with Brent crude oil and European natural gas prices up by around 9% and 34% at the peak respectively,” she said.

Goldman’s commodities team assessed…