Ukraine War Pulls Rug Out From Under World Economy Rebound

Global growth forecasts have been repeatedly cut, with the International Monetary Fund now expecting a 3.2 percent expansion compared to nearly five percent earlier.

Ukraine War Pulls Rug Out From Under World Economy Rebound

There is precious little optimism right now: US consumer confidence is nearly at a record low.

Paris:

This year was supposed to confirm the world economy's comeback from the Covid pandemic crisis. Instead, the six-month-old war in Ukraine has sparked fears of recession.

 Two 'small' economies rattle world 

"Six short months ago the macro landscape was markedly different from today," the financial data firm S&P Global said in a recent report.

Both the United States and eurozone economies were expected to see strong growth, and elevated inflation levels were seen by policymakers and markets as transitory.

"Things have changed, and not for the better," added S&P Global.

Global growth forecasts have been repeatedly cut, with the International Monetary Fund now expecting a 3.2 percent expansion compared to nearly five percent earlier.

Russia and Ukraine together account for just two percent of global output and trade, according to the OECD.

But Russia is a major exporter of oil, gas and agricultural goods, while many developing countries rely heavily on grain from Ukraine, one of the breadbaskets of the world.

The war has disrupted those shipments, causing energy and food prices to surge worldwide.

Inflation has soared everywhere, prompting central banks to aggressively hike rates -- a move that usually tames prices but slows economic activity.

Prices soar everywhere 

In Tunis, "low-income people are living a nightmare", said Naima Degaoui, a 70-year-old former nurse.

"Prices on almost everything are rising: peaches, apricots, peppers for which the prices have quadrupled, red meat," she added.

Some 11,000 kilometres (6,800 miles) away in the Chilean city of Valparaiso, 33-year-old social worker Nayib Pineira said "everything is much more expensive".

He said local gasoline prices have risen to 1,300 pesos per litre (1.42 euros per litre, $5.50 per US gallon) -- "nearly what Europeans pay, but with a European salary".

In Europe, natural gas prices have soared as Russia has slashed deliveries to countries that oppose the war.

Oil prices have jumped, too. The rise in energy prices has increased the costs of making and shipping an array of goods.

Energy-intensive sectors such as the chemicals and metals industries have been particularly hard hit, especially in Germany which had become extremely dependent upon cheap Russian natural gas.

Policymakers scramble to control situation 

Faced with surging inflation, developed nations have reverted to supporting their economies just when they were hoping to wean them off aid provided to help with Covid lockdowns.

With support for heating costs, cuts to gasoline taxes, price caps and windfall taxes on oil companies, European nations have pulled out the stops to cushion the blow to consumers from higher energy costs.

In the United States, Congress passed a $370 billion investment package called the Inflation Reduction Act that aims to contain health care costs and promote alternative energies.

Central banks, meanwhile, are expected to continue their aggressive interest rate hikes. Stock markets have been spooked by the monetary tightening, with the S&P 500 index suffering its worst half-year performance in 14 years.

Global slowdown... then recession? 

There is precious little optimism right now: US consumer confidence is nearly at a record low, while that for German investors is at a two-year low point.

The Chinese property market is in a severe crisis, adding to problems caused by strict Covid lockdowns.

In Europe, there are worries that if Russia reduces gas deliveries even further there could be shortages and rationing during the coming winter.

Coupled with the tightening of monetary policy underway by central banks, fears have been rising of a global recession, although the main forecasters have so far discounted this possibility.

That is because there are also signs of resilience in the global economy.

The labour markets in both Europe and the United States remain strong.

The Biden administration has pointed to the strength of the US jobs market to argue that the US economy is not in recession despite two consecutive quarters of economic contraction.

The mixed signals prompted analysts at HSBC to compare the situation to the thought experiment by Nobel Prize-winning Austrian physicist Erwin Schroedinger to resolve a quantum paradox in which two states are simultaneously possible.

"In the same way that Erwin Schroedinger's cat was both dead and alive at the same time, the global economy may be both in a recession and not -- at least not yet," they wrote.

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

.