Global economic outlook darkens as ‘once in a lifetime’ shocks take their toll

The United States is better positioned to weather the downturn than most other countries, experts said, due to its economic strength coming this year and its ability to produce nearly all the food and energy it needs. need. But decades of globalization have bound the world so tightly that no nation is immune to the effects of crises erupting on any continent, and the effects have spilled over to our shores.

Americans are being criticized by sky-high gasoline prices dictated by global markets that have been rocked by sweeping sanctions imposed on Russia, the world’s third-largest oil producer, after it invaded Ukraine. Food prices, already high by higher transport costs, rose further because the war raised fears of grain shortages. And further global economic turmoil has pushed the value of the dollar higher as businesses and investors seek financial security, a development that is hurting U.S. exports by making them more expensive overseas.

“The problems we are seeing overseas are affecting the US economy on a scale that has never happened before,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, a forecasting firm. “A lot of them are ‘once in a lifetime’ types of shocks that all happened around the same time.”

In a sobering report this month, the World Bank cut its global economic growth forecast for 2022 to 2.9%. That’s about half last year’s growth rate, which was the strongest since 1973, as the world recovered from the short, severe recession triggered by the first pandemic shutdowns. The new slowdown was spurred by the war in Ukraine, mounting COVID lockdowns in China and continued supply chain disruptions that are “hammering growth”, World Bank President David Malpass said.

“For many countries, recession will be hard to avoid,” he warned when the bank’s latest report on the global economic outlook was released on June 7.

The United States is one of those countries. The World Bank has lowered its forecast for economic growth here to 2.5% this year. But conditions are changing so rapidly — the Bureau of Labor Statistics reported on June 10 that the annual inflation rate in the United States has surprisingly soared to 8.6% — that those numbers already seem outdated.

Federal Reserve officials on Wednesday lowered their forecast for U.S. economic growth this year to 1.7% from 2.8% in March, as they enacted their biggest interest rate hike in nearly 20 years. to slow growth in order to reduce rising inflation. at the fastest annual rate rate in 40 years.

This pace of economic growth, and a similar Fed forecast of 1.7% for 2023, is above the level of a recession, which is generally defined as at least six consecutive months of contraction. But the Fed’s rate hike and its promise of more to come this year and next has led Bloomberg Economics to forecast a 72% chance of a U.S. recession by early 2024.

Fed Chairman Jerome Powell told reporters on Wednesday he still expects the central bank to slow the economy enough to reduce inflation without plunging the country into recession, but acknowledged that the task was becoming more difficult due to international factors. “There is a way to get there,” he said. “It doesn’t get any easier. It becomes more difficult because of these external forces.

President Biden, who has limited options to cut gasoline prices, said Thursday that a U.S. recession was “not inevitable.” But he blamed record gas prices on Russia’s invasion of Ukraine, which sent already high prices soaring this year.

“I made it clear that helping Ukraine and organizing NATO to help Ukraine is going to be expensive,” Biden told The Associated Press. “There would be a price to pay for that.”

Even if the United States avoids a recession, it could face a period of stagnant growth and high inflation – a debilitating combination called stagflation – as it did during the dark economic decade of the 1970s.

“Inflation has become a really big issue now, and the inflationary pressures at this point seem unrelenting,” Brian Coulton, chief economist at ratings firm Fitch Ratings, said in a webinar Thursday after releasing a report. which also lowered its global economic forecast this year. at 2.9 percent.

But even as U.S. consumers are hurt by gasoline prices, which AAA said hit an average national record close to $5.02 a gallon on Tuesday, the broader economic effect is somewhat offset by the increased revenue the United States derives from its large oil production, Joseph said. E. Gagnon, Senior Researcher at the Peterson Institute for International Economics Think Tank.

“There are winners and losers in these big changes in oil and energy commodity prices,” he said. “We all have losers in our countries, consumers who buy these things and it’s hard and they will have to reduce their other expenses. But we have more winners in America than they have in Japan or Europe, like the oil producers.

Other nations are not so lucky.

“Many countries are in a precarious situation,” said Monika Tothova, an economist at the Food and Agriculture Organization of the United Nations. “Over the past year, we have seen a new surge in world hunger.”

About 193 million people in 53 countries and territories around the world were already experiencing “acute food insecurity” in 2021, an increase of 40 million from the previous year, according to a May report by the United Nations World Food Programme. The war in Ukraine, a major wheat producer, has exacerbated the problem.

Russia blocked the export of wheat from Ukrainian ports, pushing the average cost of a bushel of wheat up 56% in May from a year earlier, said Eric Munoz, senior policy adviser for agriculture at Oxfam. America, a global organization fighting against poverty and poverty. injustice. This is why the problem of access to food has spread beyond poor countries to middle-income countries like Egypt, which depend on imports of wheat from Ukraine and Russia and have had to scramble to find increasingly expensive substitutes. Rising interest rates make it harder for these countries to borrow money to offset higher food costs.

A new hunger report released this month by the two UN agencies has warned that up to 49 million people in 46 countries could be at risk of falling into famine or near-famine conditions. This included 750,000 people in what the report calls “catastrophic conditions”, in Ethiopia, Afghanistan, Nigeria, Somalia, South Sudan and Yemen.

“Ukraine was, in many ways, at least for food prices, the straw that broke the camel’s back,” Munoz said.

Biden said last week that the United States was working on ways to get grain out of Ukraine by rail. And a $40 billion aid package for Ukraine he signed last month included $5 billion in global food aid. But faced with potential food shortages at home, some countries like India have banned exports of wheat or other commodities.

“We see countries taking it upon themselves to restrict or ban food exports from their country because they want to make sure they have enough domestic supplies. It also puts upward pressure on food prices,” said Baumohl, the economist.

This all adds up to great uncertainty that is holding back economic growth, he said.

“Globalization has many advantages,” Baumohl said. “But when suddenly the world experiences a series of truly historic, unique and exogenous shocks, then we find out how vulnerable all countries are because they are so intertwined.”

Jim Puzzanghera can be contacted at [email protected] Follow him on Twitter: @JimPuzzanghera.

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