Russia’s war after 6 months: a global economy in growing danger

MECKENHEIM, Germany — Martin Kopf needs natural gas to run his family business, Zinkpower GmbH, which makes steel parts rust-resistant in West Germany.

Zinkpower’s plant outside Bonn uses gas to keep 600 tons of zinc worth EUR 2.5 million ($2.5 million) in the molten state every day. The metal will harden otherwise, destroying the tank where steel parts are dipped before ending up in car suspensions, buildings, solar panels and wind turbines.

Six months after Russia invaded Ukraine, the consequences are posing a devastating threat to the global economy, including companies like Zinkpower, which employ 2,800 people. Not only is gas much more expensive, it may not be available at all if Russia completely cuts off supplies to Europe to avenge Western sanctions, or if utilities can’t store enough for the winter.

Germany may have to impose gas rationing that could cripple industries from steelmaking to pharmaceuticals to commercial laundries. “If they say we’ll shut you down, then all my equipment will be destroyed,” said Kopf, who is also president of the German Association of Galvanizing Companies.

Governments, businesses and families around the world are feeling the economic fallout from the war just two years after the coronavirus pandemic devastated global trade. Inflation is rising and skyrocketing energy costs have increased the prospect of a cold, dark winter. Europe is on the brink of a recession.

High food prices and shortages, exacerbated by the cessation of fertilizer and grain shipments from Ukraine and Russia that are slowly resuming, could lead to widespread hunger and unrest in developing countries.

Outside Uganda’s capital, Kampala, Rachel Gamisha said the Russian war in far-away Ukraine has hurt her grocery stores. She’s felt it in rising prices for supplies like gasoline, which sell for $6.90 a gallon. Something that is 2,000 shillings (about $16.70) this week could cost 3,000 shillings ($25) next week.

“You have to limit yourself,” she said. “You have to buy a few things that go fast.”

Gamisha has also noticed something else – a phenomenon called “shrink-flation”: a price may not change, but a donut that used to weigh 45 grams may now only weigh 35 grams. Bread that weighed 1 kilogram is now 850 grams.

The war in Russia last month prompted the International Monetary Fund to lower its outlook for the global economy for the fourth time in less than a year. The lender 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 may soon be teetering on the brink of a global recession, just two years after the last,” said Pierre-Olivier Gourinchas, IMF chief economist.

According to the UN Development Programme, rising food and energy prices pushed 71 million people into poverty worldwide in the first three months of the war. Countries in the Balkans and sub-Saharan Africa were hardest hit. Up to 181 million people in 41 countries could face a hunger crisis this year, the UN Food and Agriculture Organization predicts.

In Bangkok, rising costs for pork, vegetables and oil have forced Warunee Deejai, a street food vendor, to raise prices, cut staff and work more hours.

“I don’t know how long I can keep my lunch price affordable,” she said. “It’s hard to get out of the COVID lockdowns and face this. Worse, I don’t see the end of it.”

Even before Russian President Vladimir Putin ordered the invasion of Ukraine, the global economy was under strain. Inflation had skyrocketed as a stronger-than-expected recovery from the pandemic recession overwhelmed factories, ports and freight yards, causing delays, shortages and higher prices. In response, central banks began raising interest rates to try to cool economic growth and contain rising prices.

“We all have different things going on,” said Robin Brooks, chief economist at the International Institute of Finance. “Inflation volatility increased. more difficult to steer the ship.”

China, which has a zero-COVID policy, has imposed lockdowns that have severely weakened the world’s second-largest economy. At that time, many developing countries were still struggling with the pandemic and the heavy debts they had taken on to protect their peoples from economic disaster.

All those challenges may have been manageable. But when Russia invaded Ukraine on February 24, the West responded with heavy sanctions. Both actions disrupted the trade in food and energy. Russia is the world’s third largest petroleum producer and a leading exporter of natural gas, fertilizer and wheat. Farms in Ukraine feed millions worldwide.

The resulting inflation has rippled out into the world.

Near Johannesburg, South Africa, Stephanie Muller compared prices online and checked several supermarkets to find the best deals.

“I have three kids who all go to school, so I’ve felt the difference,” she said.

While shopping at a market in Vietnam’s capital Hanoi, Bui Thu Huong said she is limiting her spending and cutting back on weekend dinners. There is at least one benefit to cooking at home with her kids: “We can bond with them more in the kitchen, while saving money at the same time.”

Indonesia’s agriculture minister Syahrul Yasin Limpo warned this month that the price of instant noodles, a staple in the Southeast Asian nation, could triple due to high wheat prices. In neighboring Malaysia, greengrocer Jimmy Tan complains that fertilizer prices have risen by 50%. He also pays more for supplies such as plastic plates, bags, and hoses.

In Karachi, Pakistan, far from the battlefields of Ukraine, Kamran Arif has taken a second, part-time job to supplement his pay.

“Since we have no control over prices, we can only try to increase our income,” he said.

A vast majority of people live in poverty in Pakistan, where the 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 the war fuels inflation, central banks are raising interest rates to try to slow price increases without derailing economic growth.

The resulting increase in loan rates is a penalty for FlooringStores, a New York-based company that helps customers find flooring materials and contractors. Sales have fallen as fewer homeowners borrow to pay for home improvements.

“A huge percentage of our clients are financing their projects with equity loans and similar products, which means the rise in interest rates has really killed our business,” said CEO Todd Saunders. “Inflation didn’t help, but interest rates took a toll. greater effect.”

Europe, which for years depended on Russian oil and natural gas for its industrial economy, has been dealt a serious blow. It faces the growing threat of recession as the Kremlin cuts back flows of natural gas used to heat homes, generate electricity and burn factories. Prices are 15 times higher than before Russia gathered troops on the Ukrainian border in March 2021.

“There is much more recession risk and pressure in Europe than in the rest of the high-income economies,” said Adam Posen, president of the Peterson Institute for International Economics and former Bank of England policymaker.

The damage has hardly spared Russia, which the IMF expects to shrink by 6% this year. Sergey Aleksashenko, a Russian economist now living in the United States, noted that the country’s second-quarter retail sales fell 10% from a year earlier as consumers cut spending.

“They have no money to spend,” he said.

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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; Mohammed Farooq in Karachi, Pakistan; and Munir Ahmed in Islamabad contributed.

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