An Egyptian widow struggles to afford meat and eggs for her five children. A disgruntled German laundry owner watches his energy bill quintuple. Nigerian bakeries have closed their doors as they cannot afford the exorbitant price of flour.
A year after Russia invaded Ukraine on February 24, 2022, causing widespread suffering, the global economy is still suffering the consequences — tight supplies of grain, fertilizers and energy, as well as increased inflation and economic uncertainty in a world struggling already struggling with too much of both.
As dismal as the effects of the war were, there is one consolation: it could have been worse. Companies and countries in the developed world have shown surprising resilience, avoiding the worst-case scenario of a painful recession so far.
But in emerging markets, the pain was more intense.
In Egypt, where almost a third of the population lives in poverty, Halima Rabie has struggled for years to feed her five school-age children. Now the 47-year-old widow has reduced even the most basic groceries as prices continue to rise.
“It has become unbearable,” Rabie said, heading to her job as a cleaner at a government hospital in Cairo’s twin city of Giza. “Meat and eggs have become a luxury.”
In the United States and other wealthy countries, painful consumer price inflation, fueled in part by the war’s impact on oil prices, has steadily eased. There are hopes that the US Federal Reserve’s anti-inflatables will back off the rate hikes that threatened to plunge the world’s largest economy into recession and sent other currencies plummeting against the dollar.
China also dropped draconian zero-COVID lockdowns late last year that hampered growth in the second-largest economy.
A bit of luck has also played a role: a warmer-than-usual winter has helped drive down natural gas prices and limit the damage of an energy crisis after Russia largely cut off gas supplies to Europe. Still, oil and gas prices were high enough to cushion the impact of international sanctions imposed after President Vladimir Putin’s invasion on Russia’s energy-exporting economy.
The war “is a human catastrophe,” said Adam Posen, president of the Peterson Institute for International Economics. “But its impact on the global economy is a temporary shock.”
Nevertheless, the war causes pain, both large and small. In Europe, for example, natural gas prices are still three times what they were before Russia began massing troops on the border with Ukraine.
Sven Paar, who runs a commercial laundry in Waldürn, southwest Germany, is facing a gas bill of about 165,000 euros ($176,000) this year – up from 30,000 euros ($32,000) last year – to run 12 heavy-duty machines capable of washing 8 tons of laundry during the day.
“We passed the prices on to our customers one-to-one,” said Paar.
Previously, he was able to keep his customers after showing them the energy bills that came with the price hikes.
“Finger your fingers it’s working so far,” he said. “At the same time, customers are moaning and having to pass the cost on to their own customers.”
While he has kept his regular customers, they offer less business. Restaurants with fewer guests require fewer washed tablecloths. Several hotels closed in February instead of paying heating bills during their off-season, meaning fewer hotel linens to be cleaned.
Sinfully high food prices hit the poor particularly hard. The war has disrupted wheat, barley and cooking oil from Ukraine and Russia, key global suppliers to Africa, the Middle East and parts of Asia, where many are struggling with food insecurity. Russia was also the top supplier of fertilizers.
While a UN-brokered deal has allowed some food shipments from the Black Sea region, it is up for renewal next month.
In Egypt, the world’s largest wheat importer, Rabie took a second job at a private clinic in July but is still struggling to keep up with soaring prices. She earns less than $170 a month.
Rabie said she cooks meat once a month and resorts to cheaper by-products to ensure her kids get protein. But even those are getting harder and harder to find.
The government urged Egyptians to try chicken feet and wings as an alternative source of protein – a suggestion that drew scorn on social media but also sparked a surge in demand.
“Even the feet have gotten expensive,” Rabie said.
In Nigeria, a top importer of Russian wheat, average food prices have skyrocketed 37% over the past year. In view of the wheat shortage, bread prices have doubled in some places.
“People have to make big decisions,” said Alexander Verhes, who runs Life Flour Mill Limited in southern Delta. “What food are you buying? Do they spend it on food? Training? Drug?”
At least 40% of bakeries in Nigeria’s capital, Abuja, closed after flour prices rose by about 200%.
“Those who are still in business are doing so at the breaking point with no profit,” said Mansur Umar, chairman of the bakers’ association. “Many people have stopped eating bread. They chose alternatives because of the cost.”
In Spain, the government is spending 300 million euros to help farmers buy 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 has no food, the crops will not grow.”
All of this means a slowdown in the global economy. The International Monetary Fund lowered growth expectations this year, and in 2022 that translates to about $1 trillion in lost output. Europe’s economy, for example, “is still facing significant headwinds” despite a fall in energy prices and is at risk of slipping into recession, said Nathan Sheets, chief global economist at banking giant Citi.
The IMF says consumer prices in the wealthiest countries rose by 7.3% last year – above the January 2022 forecast of 3.9% – and in the poorer ones by 9.9%, versus 5.9%, expected before the invasion.
In the US, such inflation has forced companies to be flexible.
Stacy Elmore, co-founder of The Luxury Pergola in Noblesville, Indiana, said the cost of providing health insurance for eight workers increased 39% over the past year to $10,000 a month. Amid a labor shortage, she’s also had to raise hourly wages for her top plumber from $24 to $30 an hour.
Consumers, plagued by inflation, began paying $22,500 for a 10-by-16-foot louvered pergola — a type of gazebo without walls — sold through dealerships. Sales have fallen over the past year. So Elmore switched to do-it-yourself models, selling direct to buyers at a heavily discounted price of $12,580.
“In the face of high inflation, we’ve worked to make our products more attractive and more accessible to the average person,” said Elmore.
In the Indonesian capital of Jakarta, many street vendors know they cannot pass on rising food prices to their already ailing customers. Some skimp on portions instead, a practice known as “shrinkflation.”
“A kilogram of rice was for eight servings… but now we’ve made ten servings out of it,” said Mukroni, 52, who runs a food stall and, like many Indonesians, has only one name. Customers, he said, “will not come into the store” if the prices are too high.
“We hope for peace,” he said, “because after all, nobody will win or lose because everyone will be victims.”
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Wiseman reported from Washington and McHugh from Frankfurt, Germany. ` journalist 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.
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