The conflict in the Middle East will lead to sharp falls in GDP in the Gulf economies and weigh on energy importers, especially in Asia. EM energy producers outside the Gulf will see a terms-of-trade windfall, although we think it’s unlikely to result in a material boost to GDP growth. Inflation will rise from recent low rates. If the conflict is protracted, policymakers could turn to monetary tightening. But even if is short-lived, officials are less likely to deliver the cuts we had previously pencilled in.
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