(Yicai) Sept. 16 -- Economists at the Fortune Global 500 Summit discern a potential path from a de-escalation of the Middle East conflict to lower crude oil prices, easing global inflation, and possible interest rate cuts by the US Federal Reserve next year.

“I’m quite optimistic about a solution to the Middle East issues,” Lu Ting, managing director and China chief economist at Nomura Securities, said at the summit that concluded in Guangzhou today. “The war will come to an end, and oil prices will return to normal.”

Lu noted that the outbreak of a new war amid the ongoing Russia-Ukraine conflict has had a major impact on international oil prices, similar to the situation in 2022.

Oil has risen to around USD108 per barrel, reviving concerns about higher inflation. Expectations for a US rate hike have also risen sharply over the past two to three months.

The global economy has proved more resilient than expected this year despite renewed inflationary pressure, Lu pointed out. Even with the US and Iran at war and oil prices at new highs, the economic impact has so far been less severe than some had feared, he said, adding that strategic oil reserves released by several countries, along with increased output from producers, including the US, have helped to cushion the supply shock.

Anticipating a resolution to the Middle East conflict and a return of oil prices to normal levels, Lu said he expects next year could still be a good year.

US inflation will ease and the Fed may cut interest rates in 2027, according to Shan Hui, China chief economist at Goldman Sachs. She pointed out that while global crude oil reserves remain high, they have dropped noticeably after months of conflict.

The high oil prices and interest rates have created much uncertainty, and oil may stay elevated this year but could drop next year. As US inflation gradually declines, the Fed may lower rates in 2027, which would have a positive economic effect, Shan noted.

Song Yu, China chief economist at UBS Securities, said the interest rate gap between the US and emerging markets may persist for some time. Many Chinese businesses still consider borrowing costs to be too high despite a prolonged period of low rates, Song said.

Compared with other major economies, China’s inflation is relatively subdued, giving policymakers more room to cut rates if costlier oil stokes inflation, Song said, adding that borrowing costs could continue to decline for some time.

Song also noted the importance of fixed-asset investment, giving the example of artificial intelligence, a capital-intensive industry that requires vast amounts of energy. With energy supply becoming less predictable and oil prices likely to remain high for some time, more investment will need to flow into renewable energy, he said, an area where China is playing a leading role.

Editor: Tom Litting