Categories: Economic News

A global economy in growing danger

By PAUL WISEMAN and DAVID McHUGH, AP business writers

MECKENHEIM, Germany (AP) — Martin Kopf needs natural gas to run his family’s company, Zinkpower GmbH, which protects 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 tank where the steel parts are dipped before they end up in car suspensions, buildings, solar panels and wind turbines.

Six months after Russia invaded Ukraine, the fallout poses a devastating threat to the global economy, including companies like Zinkpower, which employs 2,800 people. Not only is the gas much more expensive, it may not be available if Russia completely cuts off supplies to Europe in retaliation for 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’re cutting you off, my whole team will be destroyed,” said Kopf, who also chairs the German Association of Zinc Plating Companies.

Political cartoons about world leaders

Political cartoons

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

High food prices and shortages, made worse by the cut in fertilizer and grain shipments from Ukraine and Russia that are slowly recovering, could produce widespread hunger and unrest in the developing world.

Outside Uganda’s capital, Kampala, Rachel Gamisha said Russia’s war in faraway Ukraine has hurt her grocery business. He has felt it in the rising prices of necessities like gasoline, which sells for $6.90 a gallon. Something that is 2,000 shillings (about $16.70) this week may cost 3,000 shillings ($25) next week.

“You have to limit yourself,” he said. “You have to buy some things that move fast.”

Gamisha has also noticed something else: a phenomenon called “shrinkage”: a price may not change, but a donut that once weighed 45 grams may now be only 35 grams. The bread that weighed 1 kilogram is now 850 grams.

The war in Russia prompted the International Monetary Fund last month to downgrade its outlook for the world economy for the fourth time in less than a year. The credit agency expects growth of 3.2% this year, down from the 4.9% expected in July 2021 and well below last year’s vigorous 6.1%.

“The world may soon be on the brink of a global recession, just two years after the last one,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.

The United Nations Development Program said rising food and energy prices pushed 71 million people worldwide into poverty in the first three months of the war. The countries of the Balkans and sub-Saharan Africa were the most affected. Up to 181 million people in 41 countries could suffer from a crisis of hunger this year, as projected by the Food and Agriculture Organization of the United Nations.

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

“I don’t know how long I can keep the price of my lunch affordable,” he said. “Getting out of the confinements of COVID and having to face it is difficult. The worst thing 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 had soared 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 in an attempt to cool economic growth and control rising prices.

“We all have all these different things,” said Robin Brooks, chief economist at the Institute of International Finance. “Inflation volatility went up. Growth volatility went up. And so it’s become infinitely more difficult for central banks to steer the ship.”

China, following a zero-covid policy, imposed lockdowns that have severely weakened the world’s second-largest economy. At the time, many developing countries were still struggling with the pandemic and the huge debts they had taken on to protect their populations from economic disasters.

All these challenges could have been manageable. But when Russia invaded Ukraine on February 24, the West responded with heavy sanctions. Both actions disrupted food and energy trade. Russia is the world’s third largest oil producer and one of the main exporters of natural gas, fertilizers and wheat. Ukrainian farms feed millions of people around the world.

The resulting inflation has affected the world.

Near Johannesburg, South Africa, Stephanie Muller has been comparing prices online and checking out different grocery stores to find the best deals.

“I have three children who are all in school, so I have felt the difference,” she said.

Bui Thu Huong, shopping at a market in Vietnam’s capital, Hanoi, said she has been limiting her spending and cutting back on weekend dinners. There is at least one advantage to cooking at home with her 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 nation, could triple due to inflated wheat prices. In neighboring Malaysia, vegetable farmer Jimmy Tan laments a 50% increase in fertilizer prices. You also pay more for supplies like plastic sheeting, bags and hoses.

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

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

The vast majority of people live 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 the war fuels inflation, central banks are raising interest rates to try to curb rising prices without derailing economic growth.

The resulting increase in loan rates is punishing FlooringStores, a New York company that helps customers find flooring supplies and contractors. Sales are down because fewer homeowners are taking out loans to pay for home improvements.

“A large percentage of our customers finance their projects with home equity loans and similar products, which means that rising interest rates really killed our business,” said CEO Todd Saunders. “Inflation wasn’t helping, but interest rates had a bigger effect.”

Europe, which for years depended on Russian oil and natural gas for its industrial economy, has taken a hit. It faces the growing threat of recession as the Kremlin curbs flows of natural gas used to heat homes, generate electricity and power factories. Prices are 15 times what they were before Russia massed troops on the border with Ukraine in March 2021.

“There is much more recession risk and pressure in Europe than in other 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 the IMF expects 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 percent in the second quarter compared with a year earlier as consumers cut back.

“They don’t have 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

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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