The Russian war at 6 months: a world economy in growing danger
MECKENHEIM, Germany (AP) — Martin Kopf needs natural gas to run the family business, Zinkpower GmbH, which rustproofs steel components in western Germany.
Zinkpower’s facility outside Bonn uses gas to keep 600 tons of zinc worth 2.5 million euros ($2.5 million) in a molten state every day. Otherwise, the metal will harden, destroying the reservoir where the steel parts are hardened before ending up in car suspensions, buildings, solar panels and wind turbines.
Six months after Russia invaded Ukraine, the aftermath poses a devastating threat to the global economy, including companies like Zinkpower, which employs 2,800 people. Gas is not only much more expensive, it might not be available at all if Russia completely cuts off supplies to Europe in revenge for Western sanctions, or if utilities cannot store enough for the gas. ‘winter.
Germany may have to impose gas rationing that could cripple industries from steel to pharmaceuticals to commercial laundries. “If they say, we cut you off, all my equipment will be destroyed,” said Kopf, who also chairs the German association of zinc galvanizing companies.
Governments, businesses and families around the world are feeling the economic effects of war just two years after the coronavirus pandemic ravaged global trade. Inflation is soaring and soaring energy costs raise the prospect of a cold, bleak winter. Europe is on the verge of recession.
High food prices and shortages, compounded by the halt in fertilizer and grain shipments from Ukraine and Russia which are slowly resuming, could cause widespread famine and unrest in the developing world.
Outside the Ugandan capital of Kampala, Rachel Gamisha said Russia’s war in distant Ukraine has hurt her grocery business. She felt it in the soaring prices of necessities like gasoline, which sell for $6.90 a gallon. Something that costs 2,000 shillings (about $16.70) this week may cost 3,000 shillings ($25) next week.
“You have to limit yourself,” she says. “You have to buy a few fast-moving things.”
Gamisha also noticed something else – a phenomenon called “shrinkflation”: a price may not change, but a donut that used to weigh 45 grams now weighs only 35 grams. A loaf that used to weigh 1 kilogram now weighs 850 grams.
The war in Russia last month led the International Monetary Fund to downgrade its outlook for the global economy for the fourth time in less than a year. The lending agency expects growth of 3.2% this year, down from the 4.9% it forecast in July 2021 and well below last year’s strong 6.1%. .
“The world could soon tip over to the brink of a global recession, just two years after the last one,” said Pierre-Olivier Gourinchas, chief economist of the IMF.
The UN Development Program said soaring food and energy prices pushed 71 million people around the world into poverty in the first three months of the war. Countries in the Balkans and sub-Saharan Africa have been hardest hit. According to the Food and Agriculture Organization of the United Nations, up to 181 million people in 41 countries could suffer from a hunger crisis this year.
In Bangkok, rising prices for pork, vegetables and oil forced street vendor Warunee Deejai to raise prices, cut staff and work longer hours.
“I don’t know how long I can keep my lunch price affordable,” she said. “Coming out of COVID lockdowns and having to deal with that is tough. The worst part is that I don’t see the end of it.
Even before Russian President Vladimir Putin ordered the invasion of Ukraine, the global economy was under pressure. Inflation soared as a stronger-than-expected recovery from the pandemic recession overwhelmed factories, ports and freight stations, causing delays, shortages and higher prices. In response, central banks began to raise interest rates in an attempt to curb economic growth and rein in soaring prices.
“We all have all these different things going on,” said Robin Brooks, chief economist at the International Institute of Finance. “Inflation volatility has increased. Growth volatility has increased. And as a result, it has become infinitely more difficult for central banks to steer the ship.”
China, pursuing a zero-COVID policy, imposed lockdowns that severely weakened the world’s second-largest economy. At the time, many developing countries were still struggling with the pandemic and the heavy debts they had incurred to protect their populations from economic disaster.
All of these challenges could have been manageable. But when Russia invaded Ukraine on February 24, the West responded with heavy sanctions. Both of these actions disrupted trade in food and energy. Russia is the world’s third largest oil producer and one of the main exporters of natural gas, fertilizer and wheat. Ukrainian farms feed millions of people around the world.
The resulting inflation rippled through the world.
Near Johannesburg, South Africa, Stephanie Muller compares prices online and visits different grocery stores to find the best deals.
“I have three children who are all in school, so I felt the difference,” she said.
Shopping at a market in the Vietnamese capital, Hanoi, Bui Thu Huong said she was limiting her spending and cutting back on weekend dinners. At least there is an advantage to cooking at home with your children: “We can bond more with them in the kitchen, while saving money. »
Syahrul Yasin Limpo, Indonesia’s agriculture minister, warned this month that the price of instant noodles, a staple in the Southeast Asian country, could triple due to rising wheat prices. . In neighboring Malaysia, vegetable producer Jimmy Tan laments that fertilizer prices have risen by 50%. It also pays more for supplies such as plastic sheeting, bags, and tubing.
In Karachi, Pakistan, far from the battlefields of Ukraine, Kamran Arif took a second part-time job to supplement his salary.
“Because we have no control over prices, we can only try to increase our income,” he said.
A large majority of the population lives in poverty in Pakistan, whose currency has lost up to 30% of its value against the dollar and the government has raised electricity prices by 50%.
Muhammad Shakil, an importer and exporter, says he can no longer get wheat, white chickpeas and yellow peas from Ukraine.
“Now that we have to import from other countries, we have to buy at higher prices” – sometimes 10-15% more, Shakil said.
As war stokes inflation, central banks raise interest rates in an attempt to slow rising prices without derailing economic growth.
The resulting increase in loan rates penalizes FlooringStores, a New York-based company that helps customers find flooring and contractors. Sales are down because fewer homeowners are borrowing to pay for renovations.
“A huge percentage of our customers are funding their projects with home equity loans and similar products, which means rising interest rates have really killed our business,” CEO Todd Saunders said. “Inflation didn’t help, but interest rates had a bigger effect.”
Europe, which for years has depended on Russian oil and natural gas for its industrial economy, has taken a punch. It faces the growing threat of recession as the Kremlin throttles the flow of natural gas used to heat homes, generate electricity and light factories. Prices are 15 times higher than they were before Russia massed troops on the Ukrainian border in March 2021.
“There are far more risks and recessionary pressures in Europe than in the rest of the high-income economies,” said Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England policymaker.
The damage has hardly spared Russia, whose economy, according to the IMF, is expected to contract by 6% this year. Sergey Aleksashenko, a Russian economist now living in the United States, noted that the country’s retail sales fell 10% in the second quarter from a year earlier as consumers cut spending.
“They have no money to spend,” he said.
Wiseman reported from Washington. AP reporters Rodney Muhumuza in Kampala, Uganda; Mogomotsi Magome in Johannesburg; Aya Batrawy in Dubai, United Arab Emirates; Hau Dinh in Hanoi, Vietnam; Eileen Ng in Kuala Lumpur, Malaysia; Edna Tarigan in Jakarta, Indonesia; Tassanee Vejpongsa in Bangkok; Muhammad Farooq in Karachi, Pakistan; and Munir Ahmed in Islamabad contributed.
Follow AP’s coverage of the war in Ukraine at https://apnews.com/hub/russia-ukraine