Economy
How Ukraine war have affect the global economy One year later
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An Egyptian widow is struggling to afford meat and eggs for her five children. An exasperated German laundry owner watches as his energy bill jumps fivefold. Nigerian bakeries have shut their doors, unable to afford the exorbitant price of flour.
One year after Russia invaded Ukraine on Feb. 24, 2022, and caused widespread suffering, the global economy is still enduring the consequences — crunched supplies of grain, fertilizer and energy along with more inflation and economic uncertainty in a world that was already contending with too much of both.
As dismal as the war’s impact has been, there’s one consolation: It could have been worse. Companies and countries in the developed world have proved surprisingly resilient, so far avoiding the worst-case scenario of painful recession.
But in emerging economies, the pain has been more intense.
“It’s become unbearable,” Rabie said, heading to her job as a cleaner at a state-run hospital in Cairo’s twin city of Giza. “Meat and eggs have become a luxury.”
In the United States and other wealthy countries, a painful surge in consumer prices, fueled in part by the war’s effect on oil prices, has steadily eased. It’s buoyed hopes that U.S. Federal Reserve inflation fighters will relent on interest rate increases that have threatened to tip the world’s biggest economy into recession and sent other currencies tumbling against the dollar.
China also dropped draconian zero-COVID lockdowns late last year that hobbled growth in the second-largest economy.
Some good fortune has helped, too: A warmer-than-usual winter has helped lower natural gas prices and limit the damage from an energy crisis after Russia largely cut off gas to Europe. Still, oil and gas prices were high enough to cushion the impact on the energy-exporting Russian economy from the international sanctions imposed after President Vladimir Putin’s invasion.
The war “is a human catastrophe,” said Adam Posen, president of the Peterson Institute for International Economics. “But its impact on the world economy is a passing shock.”
Still, in ways big and small, the war is causing pain. In Europe, for example, natural gas prices are still three times what they were before Russia started massing troops on Ukraine’s border.
Sven Paar, who runs a commercial laundry in Walduern, southwest Germany, is facing a gas bill this year of about 165,000 euros (US$176,000) — up from 30,000 euros (US$32,000) last year — to run 12 heavy-duty machines that can wash 8 tons of laundry a day.
“We have passed the prices on, one to one, to our customers,” Paar said.
So far, he has been able to keep his customers after showing them the energy bills that accompany the price increases.
“Fingers crossed, it’s working so far,” he said. “At the same time, the customers groan, and they have to pass the costs on to their own customers.”
While he’s kept his steady customers, they’re offering less business. Restaurants with fewer customers need fewer tablecloths washed. Several hotels closed in February rather than pay heating costs during their slow season, meaning fewer hotel sheets to clean.
Punishingly high food prices are inflicting particular hardship on the poor. The war has disrupted wheat, barley and cooking oil from Ukraine and Russia, major global suppliers for Africa, the Middle East and parts of Asia where many struggle with food insecurity. Russia also was the top supplier of fertilizer.
While a UN.-brokered deal has allowed some food shipments from the Black Sea region, it’s up for renewal next month.
In Egypt, the world’s No. 1 wheat importer, Rabie took a second job at a private clinic in July but still struggles to keep up with rising prices. She earns less than US$170 a month.
Rabie said she cooks meat once a month and has resorted to cheaper byproducts to ensure her children get protein. But even those are becoming harder to find.
The government urged Egyptians to try chicken feet and wings as an alternative source of protein — a suggestion met with scorn on social media but that also led to a spike in demand.
“Even the feet have become expensive,” Rabie said.
In Nigeria, a top importer of Russian wheat, average food prices skyrocketed 37% last year. Bread prices have doubled in some places amid wheat shortages.
“People have huge decisions to make,” said Alexander Verhes, who runs Life Flour Mill Limited in the southern Delta state. “What food do they buy? Do they spend it on food? Schooling? Medication?”
At least 40% of bakeries in the Nigerian capital of Abuja shut down after the price of flour jumped about 200%.
“The ones still in the business are doing so at breaking point with no profits,” said Mansur Umar, chairman of the bakers’ association. “A lot of people have stopped eating bread. They have gone for alternatives because of the cost.”
In Spain, the government is spending 300 million euros (US$320 million) to help farmers acquire fertilizer, the price of which has doubled since the war in Ukraine.
“Fertilizer is vital because the land needs food,” said Jose Sanchez, a farmer in the village of Anchuelo, east of Madrid. “If the land does not have food, then the crops do not grow up.”
It all means a slowing global economy. The International Monetary Fund dropped growth expectations this year and in 2022 that equates to about US$1 trillion in lost production. Europe’s economy, for example, “is still experiencing significant headwinds” despite a drop in energy prices and is at risk of falling into recessio n, said Nathan Sheets, global chief economist at banking giant Citi.
The IMF says consumer prices jumped 7.3% in the wealthiest countries last year — above its January 2022 forecast of 3.9% — and 9.9% in poorer ones, up from 5.9% expected pre-invasion.
In the U.S., such inflation has forced businesses to be nimble.
Stacy Elmore, co-founder of The Luxury Pergola in Noblesville, Indiana, said the cost of providing health insurance for eight workers has spiked 39% over the past year — to US$10,000 a month. Amid a labor shortage, she also had to raise hourly wages for her top installer from US$24 to $30 an hour.
Inflation-whipped consumers began to balk at paying US$22,500 for a 10-by-16-foot louvered pergola — kind of a gazebo without walls — that was sold through dealers. Sales sank last year. So Elmore pivoted to do-it-yourself models, selling directly to shoppers at a sharply reduced price of US$12,580.
“With inflation so high, we’ve worked to broaden the appeal of our products and make them easier for the average person to acquire,” Elmore said.
In the Indonesian capital, Jakarta, many street vendors know they can’t pass along surging food prices to their already struggling customers. So some are skimping on portions instead, a practice known as “shrinkflation.”
“One kilogram of rice was for eight portions … but now we made it 10 portions,” said Mukroni, 52, who runs a food stall and like many Indonesians goes by only one name. Customers, he said, “will not come to the shop” if prices are too high.
“We hope for peace,” he said, “because, after all, no one will win or lose, because everyone will be a victim.”
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Wiseman reported from Washington and McHugh from Frankfurt, Germany. AP journalists Samy Magdy in Cairo; Chinedu Asadu in Abuja, Nigeria; Anne D’Innocenzio in New York; Iain Sullivan in Anchuelo, Spain; and Edna Tarigan in Jakarta, Indonesia, contributed.
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OTTAWA — Economic growth resumed in January and came in better than first expected following a small contraction in December, Statistics Canada said Friday.
Real gross domestic product rose 0.5 per cent to start the year, the agency said, beating its initial estimate for a gain of 0.3 per cent for the month and reversing a contraction of 0.1 per cent in the final month of 2022.
Statistics Canada also said its initial estimate for February indicates growth continued with a gain of 0.3 per cent, though it cautioned the figure will be updated.
“There were many indications that the economy got off to a solid start in 2023, but today’s double-barrelled blast of strength is well above even the most optimistic views,” BMO chief economist Douglas Porter wrote in a report.
“Even if growth stalls in March, it now looks like Q1 will post growth of 2.5 per cent, up from a flat read in Q4. While we continue to look for a notable cooldown in the next two quarters, we are bumping up our GDP growth estimate for all of 2023 by three ticks to 1.0 per cent.”
The growth in January came as goods-producing industries gained 0.4 per cent for the month, while services-producing industries rose 0.6 per cent.
Statistics Canada said many of the main drivers for growth in January also contributed the most to the decline in December.
The wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded after falling in the previous month.
Wholesale trade gained 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew 1.1 per cent after falling 3.3 per cent in December.
The transportation and warehousing sector added 1.9 per cent in January, more than offsetting a drop of 1.1 per cent in December that was due in part to bad weather.
This report by The Canadian Press was first published March 31, 2023.
The Canadian Press
Canada’s economy kept growing at the start of this year, defying expectations of a stall and eventual technical recession in the face of the highest interest rates in 15 years.
Preliminary data suggest gross domestic product expanded 0.3 per cent in February, Statistics Canada reported Friday in Ottawa, led higher by oil and gas, manufacturing, and finance and insurance sectors. That followed a 0.5 per cent expansion in the previous month, stronger than expectations for 0.4 per cent growth in a Bloomberg survey.
The Canadian economy is now on track to expand at an annualized rate of 2.8 per cent in the first quarter, assuming growth in March comes in flat. That’s much more robust than the 0.5 per cent annualized pace forecast by the Bank of Canada in January, when it signaled a conditional rate pause.
“Today’s double-barreled blast of strength is well above even the most optimistic views,” Bank of Montreal Chief Economist Doug Porter said in a report to investors. “Suffice it to say that if the strength seen in the opening months of the year persists, the BoC is going to find itself in a tough spot.”
Canada’s currency reclaimed nearly all of its losses after the release and bonds rallied. The yield on benchmark government two-year debt fell more than 3 basis points to 3.777 per cent at 9:50 a.m. in Ottawa.
The data suggest while some rate-sensitive sectors like housing have already cooled, overall economic growth is still holding up better than expected. It’s also at odds with a flurry of early estimates released last week that suggested a pullback in economic activity, with retail, wholesale and manufacturing sales all falling in February.
Friday’s numbers will test Governor Tiff Macklem and his officials as they look for evidence that monetary policy is sufficiently restrictive to bring inflation back to the central bank’s 2 per cent target. An accumulation of stronger-than-expected data may prompt them to stay on the sidelines for longer or even hike again.
Traders in overnight swaps markets, however, are betting the Bank of Canada’s next move will be a cut, given turmoil in global financial markets after the failure of regional U.S. lenders and a government brokered takeover of a European banking giant.
Economists in a monthly Bloomberg survey see 1 per cent annualized growth in the first three months of this year. But that’s expected to be followed by two straight quarterly contractions.
During deliberations for the central bank’s March 8 decision to hold rates steady for the first time in nine meetings, policymakers said they saw “clear signals” hikes so far were curbing demand. But there are few signs in recent data that the economy is gearing down.
Both goods-producing and services-producing industries were up in January, with nearly all sectors posting increases, except agriculture, utilities and management of companies.
Rebounds in several industries drove the January gain. Many of the key growth drivers were the largest contributors to December’s 0.1 per cent decline, including wholesale, transportation, and oil and gas industries. Accommodation and food services activity was also a key contributor.
“The Bank of Canada is likely at a crucial juncture and facing a significant dilemma,” Charles St-Arnaud, chief economist at Credit Union Central Alberta Ltd., said in a report to investors. “The central bank may have to choose between fighting inflation and hiking interest rates again or focusing on financial stability and keeping rates on hold.”
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LONDON, March 31 (Reuters) – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.
With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.
GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.
Two consecutive quarters of contraction would have represented a recession.
Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.
“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.
The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.
Since then, a string of economic data has come in stronger than expected by analysts.
Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.
“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.
House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.
The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.
Britain’s dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.
Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.
Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3% after four consecutive quarters of negative growth.
The BoE expects Britain’s economy to have contracted by 0.1% in the first three months of 2023 but it forecasts slight growth in the second quarter.
The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.
But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.
BUSINESS INVESTMENT FALLS
The data suggested businesses remained cautious. Business investment fell 0.2% in quarterly terms, a sharp downgrade from a first estimate of a 4.8% rise after changes to the way the ONS calculates seasonal adjustments.
Earlier on Friday, a survey painted a more upbeat picture for businesses.
Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.
The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4% of GDP.
Excluding volatile swings in precious metals, the shortfall fell to 3.3% of GDP from 4.2% in the third quarter.
The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.
Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.
($1 = 0.8073 pounds)
Additional reporting by William James, graphic by Vineet Sachdev; Editing by Robert Birsel and Catherine Evans
Our Standards: The Thomson Reuters Trust Principles.
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