Ukraine war pulls rug out from under global economic recovery

Ukraine war pulls rug out from under global economic recovery

There is little optimism right now. US consumer confidence is nearing record lows.


This year was supposed to confirm the recovery of the global economy from the Covid pandemic crisis. Instead, the war in Ukraine six months ago sparked fears of a recession.

Two ‘small’ economies rock the world

In a recent report, financial data firm S&P Global said: “Six months ago, macro conditions were markedly different than today.

Both the U.S. and Eurozone economies were expected to grow strongly, with policy makers and markets seeing higher inflation as temporary.

“Things have changed, but not for the better,” added S&P Global.

Global growth forecasts have been cut repeatedly, with the International Monetary Fund forecasting a 3.2% expansion, up from nearly 5% previously.

According to the OECD, Russia and Ukraine together account for only 2% of global production and trade.

However, Russia is a major exporter of oil, gas and agricultural products, and many developing countries rely heavily on grain from Ukraine, one of the world’s breadbaskets.

The war disrupted these shipments, sending energy and food prices skyrocketing around the world.

Inflation is soaring everywhere, pushing central banks aggressively to raise interest rates. This move usually keeps prices down but slows down economic activity.

Rising prices everywhere

In Tunis, “low-income people live a nightmare,” said Naima Degaoui, a 70-year-old former nurse.

“Almost everything has gone up in price, including peaches, apricots, green peppers and red meat that have quadrupled in price,” she added.

In the Chilean city of Valparaiso, about 11,000 kilometers away, “everything is much more expensive,” said 33-year-old social worker Nayib Pineira.

Local petrol prices have risen to 1,300 pesos per liter (€1.42 per liter, $5.50 per gallon), he said, “almost what Europeans pay, but comparable to European salaries. ”.

In Europe, natural gas prices soared as Russia cut supplies to countries opposing the war.

Crude oil prices also jumped. Rising energy prices are increasing the cost of manufacturing and shipping various commodities.

Energy-intensive sectors such as the chemical and metal industries have been particularly hard hit, especially in Germany, which has become heavily dependent on cheap Russian natural gas.

Policy makers scramble to control the situation

Developed nations facing skyrocketing inflation have returned to supporting their economies at a time when they hoped to pull away aid provided to help with the coronavirus lockdown.

With support for heating costs, gas tax cuts, price caps and windfall taxes for oil companies, European countries have done all they can to soften the blow to consumers from rising energy costs.

In the United States, Congress passed a $370 billion investment package called the Inflation Reduction Act aimed at containing health care costs and promoting alternative energy.

Meanwhile, central banks are expected to continue their aggressive rate hikes. The stock market has been rocked by monetary tightening and the S&P 500 index has suffered its worst half-year performance in 14 years.

A global slowdown…and a recession?

There is little optimism right now. US consumer confidence is near record lows and German investor confidence is at his lowest in two years.

China’s property market is in deep crisis, fueling problems caused by the draconian Covid lockdown.

There are fears in Europe that gas shortages and rationing could occur over the coming winter if Russia cuts gas supplies further.

Concerns about a global recession are rising, though leading forecasters have so far downplayed this possibility, coupled with the ongoing tightening of monetary policy by central banks.

Because the global economy is also showing signs of resilience.

Labor markets in Europe and the US remain strong.

The Biden administration has argued that the U.S. economy is not in recession despite two consecutive quarters of recession, pointing to the strength of the U.S. job market.

Mixed signals prompted HSBC analysts to compare the situation to a thought experiment by Nobel Prize-winning Austrian physicist Erwin Schrödinger to solve the quantum paradox that two states are possible at the same time. I was.

“Just as Erwin Schrödinger’s cat was dead and alive at the same time, the global economy may or may not be in recession – at least not yet,” they wrote.

(This article is not edited by NDTV staff and is auto-generated from a syndicated feed.)

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *