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What geopolitics stories could still blow up the global economy?

Investors hate uncertainty. For now, most of them are trying to understand how central bankers, particularly at the US Federal Reserve, will calibrate changes in interest rates to slow inflation while avoiding recession.

But there are also three big geopolitical stories that will generate plenty more questions throughout 2023.

Russia’s war

After more than a year of war following Russia’s invasion of Ukraine, two realities have emerged. Russia’s military isn’t strong enough to conquer Ukraine, but it is probably strong enough to prevent a complete Ukrainian victory. The war has now settled into a stalemate that continues to put upward pressure on energy prices and threaten further surges in food prices. (The current deal to allow grain exports through the Black Sea expires on March 18.)

To some extent, the consensus expectation for a war that lasts beyond 2023 will allow producers and companies to adjust their supply chains to new realities, to make alternative arrangements for diminished supplies of oil, gas, grain, and other commodities, and to find new trade partners.

But wars create surprises, and Russia’s inability to win the war leaves its leaders to think up creative new ways to punish Ukraine and its backers, with attacks in cyberspace, on pipelines, or on fiber optic cables, for example, adding wildcards to a deck already stacked against a predictable economic recovery from COVID.

China’s rebound?

In a time of war and global economic uncertainty, China poses a long list of questions. After all its extended COVID lockdowns, can Chinese leaders jumpstart China’s own economic growth to inject new fuel into global commerce? The relatively modest growth target the Chinese leadership recently announced generates optimism that Beijing has a realistic understanding of the risks in pushing too hard too quickly on state spending and loose lending. Has China finally cleared its COVID hurdles? There’s a lot of optimism on that front. Will US-China relations continue to deteriorate? If Washington decides that Xi Jinping’s government is trying to boost Russia’s odds of winning the war, that’s a safe bet.

Iran in flux

Two weeks ago, a senior US Defense Department official issued a startling warning. “Back in 2018,” he said, “when the [Trump] administration decided to leave the JCPOA, it would have taken Iran about 12 months to produce one bomb's worth of fissile material. Now it would take about 12 days.” That followed news in February that the International Atomic Energy Agency charged with monitoring Iranian nuclear facilities had reported finding small quantities of uranium enriched at 84%. (Enrichment at 90% can produce a nuclear weapon.)

This is a country preparing for its first transition of supreme leadership in more than 30 years, given Ali Khamenei’s advancing age and declining health. (He’ll be 84 next month.) It has faced widespread protests. The unrest seems to have died down for the moment, but given how abruptly the upheaval began, some new and equally unexpected trigger could start the cycle of demonstrations all over again. And Iran’s willingness to provide Russia with drones for use against Ukraine has newly antagonized Europeans as well as Americans.

There are fears in Israel that only an attack on Iran can prevent the development of a nuclear weapon. What’s more, many say that the recent restoration of ties between Iran and Saudi Arabia, brokered by China, is yet another sign of the deepening rift between Washington and Riyadh. Taken together, this all suggests there is constant wrangling in the heart of the world's main oil-producing region, where the US holds limited leverage.

In all these cases – Russia’s war, China’s rebound, and Iran’s flux – we have risks that are reasonably well understood. None is guaranteed to create a new and unforeseen crisis, but all of them bear careful watch through 2023 and beyond.

What We’re Watching: Grain deal deadline, tech layoffs, interest rate ripples

Will the Black Sea grain deal be renewed?

Amid growing concern that Russia may refuse to renew a deal to allow food and fertilizer shipments to travel through a safe passage in the Black Sea, UN Secretary-General António Guterres this week visited Kyiv, where he called for the renewal of the agreement, which is set to lapse on March 18. Quick recap: The grain deal, negotiated by Turkey, the UN, Russia, and Ukraine, was implemented in the summer of 2022 in a bid to free up 20 million tons of grain stuck at Ukrainian ports due to Russia’s blockade. You’ll likely remember that the two states are both huge exporters of wheat, while Russia is also the global fertilizer king. Indeed, the deal has helped alleviate a global food crisis that was hitting import-reliant Africa particularly hard, and driving up global food prices. Kyiv, for its part, says that if the deal is expanded to additional ports it could export at least some of the 30 million tons of grain that remain stuck. The Kremlin hasn’t said what its plans are but this week accused the West of “shamelessly burying" the Black Sea deal in what could be used as a pretext for its refusal to play ball.

For more on what Guterres has to say about the ongoing war in Ukraine and its human toll, check out his interview with Ian Bremmer on GZERO World.

What should we make of the great tech implosion?

We’ve heard a lot about a downturn in the tech sector in recent months after giants including Amazon, Microsoft, Meta, Salesforce, Alphabet, and Spotify laid off large chunks of their workforces. All in all, an estimated 200,000 US tech workers have been shown the door since the start of 2022 – more than the equivalent of the entire Apple workforce. At the same time, however, unemployment in the US remains at record lows, with the US adding more than 311,000 new jobs in February alone, yet another sign of the labor market's resilience. So what does – and doesn’t – the great tech debacle tell us about the current state of the global economy? First, COVID was a boon for the tech sector. As the world shut down, tech companies made the most of increased demand for work/play/eat-from-home services and embarked on massive hiring sprees. Alphabet, for example, increased its workforce by 16% between 2020-2021. But as soon as things reopened, it became clear that consumers wanted to go back to exercising in sweaty gyms and dining at overpriced ramen bars. Demand plummeted. What’s more, rising interest rates – an effort to tackle runaway inflation – and a dizzying stock market are making it harder for tech companies to raise capital and putting downward pressure on stock prices, leading to massive cost-cutting measures. Crucially, analysts warn that things will get worse before they get better.

A mountain of interest rate-driven debt

The Graphic Truth

As the war in Ukraine lingers and pandemic aftershocks continue to pound the global economy, food inflation remains sky-high throughout much of the world. Consider that over the past year alone, egg prices in the US rose by a whopping 60% on average. While prices of some food staples have dropped in recent months, partly due to the Black Sea grain deal, stubborn inflation driving up transport and labor costs means that consumers aren’t feeling prices ease at the supermarket. We take a look at food inflation in select countries now compared to a year ago, exactly one month after Russia invaded Ukraine.

Hard Numbers: Beijing underpromises, Russia slips sanctions, sunlight helps to grow US jobs, oil prices in perspective

32: Beijing’s new 2023 GDP growth target of “around 5%” is the country’s lowest in 32 years. The last time the Chinese Communist Party hedged this much, the Soviet Union was still around and a little-known band from Seattle had just released a record called “Nevermind.”

2.2: Despite the most comprehensive Western sanctions ever placed on its economy, Russia’s GDP shrunk just 2.2% last year, defying hopes and predictions of a much larger collapse. Why? Europe and the US were reluctant to sanction Russian energy exports too harshly, and Asian buyers were more than happy to buy up what the West wouldn’t.

126,000: Nearly a quarter of new jobs added by the US in January were a direct result of … the weather. An analysis by Morgan Stanley found that sunny skies heated up hiring in the world’s largest economy, creating an additional 126,000 jobs in the first month of the year.

Podcast: Should I ​STILL be worried?

“The equivalent of what we spent in World War II was spent in the course of a year and a half to support the US economy, and that had global impacts,” says David Bailin, chief investment officer and global head of investments at Citi Global Wealth. “All of that was rolled out with incredible speed and effectiveness. And the hangover effects from that … are very, very significant,” Bailin explains on the latest episode of Living Beyond Borders, a podcast from Citi Global Wealth Investments and GZERO Media.

Bailin and Eurasia Group President Ian Bremmer, together with moderator Shari Friedman, discuss the state and future of the global economy amid the war in Ukraine. While 2023 will see slow growth, Bailin says, this resetting period will lead to significant opportunities for global growth in 2024 and beyond.

Can you get by with a little help from your friends?

The pandemic inflicted a huge shock on supply chains, but there is another force at work remapping global trade flows too: the deepening ideological divide between the US and China, framed in Washington as a broader competition between democracies and autocracies.

The so-called “de-coupling” between the world’s two largest economies began during the presidency of Donald Trump, who slapped tariffs on China in a largely unsuccessful attempt to address the real harms that offshoring has done to some US workers.

US Treasury Secretary Janet Yellen recently touted the benefits of so-called “friendshoring” on a visit to South Korea, which is trying to lure American supply chains away from China and to start making more microchips itself. Southeast Asian manufacturing powerhouses like Malaysia, Vietnam, Thailand, and Indonesia are also keen to continue capitalizing as “friends” of the US.

Friendshoring may offer certain protections in a world of deepening ideological competition, but there are tradeoffs: “friendly” countries may not always produce goods as cheaply or efficiently, meaning that consumers may have to accept higher prices, particularly in the short term. Is the tradeoff of greater security in exchange for less efficiency worth it? More to the point, is it now unavoidable?

Shortages reach far beyond food

The war in Ukraine is just the latest crisis to befall global supply chains in recent years, and it appears likely to get worse before it finally eases. It’s not just about interrupted flows, shortages, and higher prices for food and fuel. According to a report published in May 2022 by Dun & Bradstreet, a total of at least 615,000 businesses operating globally depend on supplies from either Russia or Ukraine. About 90% of those firms are based in the United States, but supply chains in Europe, China, Canada, Australia, and Brazil are heavily impacted. According to the report, a total of 25 countries have a high dependency on Russia and Ukraine for a variety of commodities.

Five months into the war, it’s clear that the likeliest outcome of the current fighting will be a long-term stalemate. Russia doesn’t appear militarily strong enough to take and hold all of Ukraine, and Ukraine doesn’t appear strong enough to drive Russian troops completely off Ukrainian land. As a result, those who depend on resources and production inputs from Russia and Ukraine now know they’ll likely need to invest in new suppliers of hundreds of different commodities and products – from sunflower seeds to turbojets – to build better resilience into their supply chains, rather than simply waiting for the fighting to end.

The Graphic Truth

The pandemic sent global supply chains into a tizzy. Then, just as economies were embarking on their post-COVID economic recoveries, Russia invaded Ukraine, upending the global grain trade and sending supply chains spiraling further. Supply chain frictions have a lot of unintended consequences: Brexit-related supply chain issues made it hard for some Brits to get their hands on a pint of beer, while China’s punitive zero-COVID policy drove the auto industry – among others – into a full-blown crisis. We take a look at the Global Supply Chain Index from 2000-2022 along with key global economic milestones.

What We're Watching: Truckers wanted & not-so-cheap chips

Where are all the truck drivers?

The global truck driver shortage has been disrupting already-out-of-whack supply chains, particularly in the US, the European Union, and Britain – further complicating their post-pandemic economic recoveries. Last year, the American Truckers Association said it was around 80,000 drivers short, while in Europe, a deficit of 40,000 truckers has contributed to long waits and empty shelves. What’s going on? The pandemic has upended the way we work. Trucking is an arduous and ungratifying gig: Drivers often spend days or weeks far away from home, and they don’t get paid for hours spent waiting for goods to be loaded and unloaded. The road can be grueling, the compensation is underwhelming, and the benefits are often … nonexistent. In the US, trucking salaries have plunged in recent decades. Median wages for truck drivers in 1980 were about $110,000 annually (adjusted for inflation); in 2020, they were just $47,130. Unsurprisingly, many truckers are opting for jobs with better conditions and pay, so trucking firms in Europe and the US are struggling to lure drivers back to work and recruit new staff. It’s particularly grim in the UK, where supply-side frictions have been exacerbated by Brexit. In the US, meanwhile, companies like Walmart are fighting back by offering massive salary hikes to attract truck drivers. Will it get the wheels turning?

Chipping away at supply chains

The US Congress this week passed the behemoth Chips and Science Act, which ponies up $52 billion in subsidies and incentives to boost domestic production of semiconductors, the invisibly thin microchips that are essential for everything from phones, cars, and factories, to fighter jets, cruise missiles, and artificial intelligence. With the bill, Congress is making a big move in a new global “Chips race” for dominance of the industry: the EU is now spending close to $50 billion on the same thing, and China, which still depends on the US and its allies for inputs into its home-grown chips, has poured hundreds of billions into someday becoming a semiconductor superpower itself. For all three of the world’s largest economies, the concern is the same: the semiconductor market is highly concentrated, particularly in Taiwan, which produces more than 60% of the world’s chips. That’s a problem commercially – in 2021, there was a global shortage after tech firms gobbled up the entire supply, leaving automakers scrambling for chips. But it’s also a problem geopolitically. China doesn’t want to be dependent on chips from a Taiwan that’s allied with the US, while the US and EU don’t want to rely on a Taiwan that could be taken over by China any year now. Critics of the Chips act say its a sop to powerful tech companies that can well afford to build their own factories, and there are questions about whether the money will be spent on the right things: making the chips is one thing, cutting edge R&D is a whole other bowl of chips, and the supply chain for a single chip can pass through many countries before final assembly. As a cautionary tale: the EU aimed in 2013 to double its share of global semiconductor production to 20% by 2020. It didn’t work.

Future-proofing: How we fix broken supply chains

“Envision supply chains like a strand of Christmas lights. If one light goes out, then the whole strand will stop working.” So says Eurasia Group’s Christina Huguet on the latest episode of the Living Beyond Borders podcast, which focuses on the moments those lights went out: when the pandemic hit shipping, manufacturing, and labor all at once. Huguet, along with moderator Shari Friedman, Eurasia Group’s Managing Director of Climate and Sustainability, and David Bailin, Chief Investment Officer and Global Head of Investments at Citi Global Wealth, look at what it will take more than two years later to turn those lights back on and create more resilient global supply chains.

Listen here.

Hard Numbers: The scarcity edition

2 million: As the war in Ukraine rages on, the African continent is facing a shortfall of around 2 million metric tons of fertilizer that’s causing an unprecedented loss in food production throughout the continent. A Senegalese official warned at a recent G20 meeting that starvation could kill more Africans than COVID-19.

10: American women are the latest victims of the supply chain crunch. Tampon shortages as a result of staffing issues at manufacturing plants, transportation disruptions, and the scarcity of materials like cotton caused tampon prices to soar almost 10% in the US in recent months.

50: Europe’s largest paper packaging company, Smurfit Kappa, recorded a whopping 50% increase in core profit during the first half of this year as a result of surging pandemic-related demand. Still, the company says it’s preparing for paper shortages across the continent in the months ahead as a result of mandatory gas rationing as EU states try to reduce their dependence on Russian natural gas.

An increasingly thirsty planet

The amount of water on Earth has been more or less the same for the past 4.5 billion years. But today, a growing number of the world’s people don’t have access to enough of it. In fact, nearly half of the world's population lives in places that face water scarcity for at least one month every year. And more than 1.2 billion people lack regular access to clean water altogether.

For many of them, the situation is getting worse by the day, as climate change causes more frequent droughts or conflicts prevent people from getting to freshwater sources. The lack of access to clean water for drinking, cooking, and crops can cause illness, starvation, and death.

Small wonder, then, that water scarcity is one factor behind some of the world’s most intractable conflicts: Israel-Palestine, India-Pakistan, and now Russia-Ukraine.

The desperate search for water also has millions on the move. The UN warns that water scarcity could force some 700 million people from their homes in the coming years, in mass migrations that will test governments, humanitarian organizations, and societies alike.

But it’s not all parched earth, thirst, and conflict. Water scarcity can also give rise to spectacular practical and technological innovations, as the examples of water management in the arid landscapes of Israel, Nevada, and South Africa show.

In this special edition of Signal, we’ll look at how the world is coping with water scarcity and what’s at stake for an increasingly thirsty planet.

What We’re Watching: Water wars vs. cooperation

Water wars?

Hundreds of millions of both Indians and Pakistanis depend on water from the Indus River for drinking, farming, and hydropower. The Indus Waters Treaty, signed by India’s prime minister and Pakistan’s president in 1960, guarantees how water from the river and its tributaries will be shared. This was put at risk in February 2019, when a suicide car bomb killed more than 40 Indian soldiers in the Indian-controlled sector of Kashmir. India’s transport minister responded with plans to “stop our share of water which used to flow to Pakistan.” The Pakistani government then warned it would treat any stoppage of water as an “act of war.” A treaty loses its values if one side decides not to honor it. Though tensions cooled in this case, the risk of a water war remains, because it’s simply too dangerous for these nuclear-armed and bitter rivals to fight a war with conventional weapons, and water will only become a more precious resource in coming years. Global warming could shrink the Himalayan glaciers that feed the river by more than a third in coming decades and make rainfall patterns more erratic, even as Indian and Pakistan water demand increases with population growth.

India and Pakistan are not the only rivals to successfully share water despite bitter differences on other questions. The five former Soviet Republics in Central Asia have not fought over access to the Aral Sea. Jordan and Israel haven’t waged war over the waters of the Jordan River. Threats over access to the Nile have not yet provoked war among Ethiopia, Sudan, and Egypt. A dispute over the Mekong River between China and its Southeast Asian neighbors has generated tensions but not widespread violence. Turkey and Armenia, neighbors with no diplomatic relations who have argued for decades over charges of genocide, have continued to share water from the Arpacay River, which forms the border between them. The two countries continued to honor the Soviet-era treaty that set water-use terms even while the two have fought on opposing sides of a war in 2020.

But successfully managed disputes of the past don’t guarantee a peaceful future, so these and other potential water-based confrontations are worth watching.

Can water cooperation bring peace to the Middle East?

Water scarcity is one of the biggest crises emanating from climate change. If current trends continue, the UN warns that 5 billion people — more than two-thirds of the global population — could be living in areas grappling with extreme water scarcity by 2050. Long dealing with irregular rainfall, increasingly arid conditions, and a growing population, Israel has emerged as a global leader in clean water solutions. Israel, a tech hub, recognized early the importance of treating wastewater to meet growing domestic needs and to leverage it as a tool for international cooperation. In 2000, Israel, which straddles the Sea of Galilee and the extremely salty (and undrinkable) Dead Sea, revamped its water management system by building a slew of desalination plants. It has also revolutionized water recycling, treating wastewater effluent to make the liquid ready for human consumption and irrigation. The country currently recycles about 86% of water, using much of it for agricultural purposes in the arid Negev Desert.

This innovation has also presented opportunities for “drought diplomacy.” Last year, Israel and Jordan, who have long enjoyed a frosty peace, outlined a water-for-energy deal that will see Amman exchange solar energy capacity for much-needed desalinated water. Meanwhile, Israel has also partnered with Arab states, Egypt, and Bahrain on water-management approaches and equipment to mitigate shortages at home.

Innovative solutions to water scarcity problems can be found globally. The US state of Nevada recently inked a deal with California’s government, whereby Nevada will dole out cash to help the Golden State develop new water treatment facilities in exchange for increased access to Lake Mead. Similarly, drought-stricken South Africa, once facing Day Zero – whereby taps were slated to be turned off in major cities like Cape Town because of water shortages – has successfully found a slate of tech-based solutions, particularly for the robust agriculture sector.

The Graphic Truth

In many low- and middle-income countries, the availability of safe, drinkable water remains scarce. Though access has improved significantly in many places over the past two decades — by 152% in Afghanistan, for instance — the very low baseline means that still only 28% of that population has access to high-quality drinking water. Meanwhile, countries like the Central African Republic, Zambia, Nepal, and Pakistan saw their access reduced over the past two decades. Here’s a snapshot of the relative change in access to safe drinking water around the world from 2000 to 2020.

​Podcast: Saving the world’s water supply

In our latest “Living Beyond Borders” podcast from Citi Private Bank and GZERO Media, we examine the global risks related to the depletion of a vital ingredient needed for everything in life: water.

Severe weather events and climate change are causing an urgent water crisis. By changing our natural world, through both big and small disasters, water scarcity is disastrously on the rise worldwide.

To delve into this immediate threat, Eurasia Group’s Director of Energy, Climate & Resources Mikaela McQuade talks to Franck Gbaguidi, senior analyst of energy, climate & resources at Eurasia Group, and Harlin Singh, global head of sustainable investing at Citi Global Wealth.

Hard Numbers: India’s record drought, privatized waterways, dripping wet smartphones, big oil meets little water

669: Already sweltering amid a heatwave, the capital of India now faces water shortages with the level at Delhi's biggest reservoir dropping to 669 feet, a record low. The city’s government, run by the anti-corruption AAP party, accuses the BJP-ruled Haryana state of deliberately withholding water from the Yamuna River, which it denies.

454 billion: Private corporations control 454 billion cubic meters of water around the world, about 5% of the global supply. This water-grabbing is a major problem in Africa, where China, India, Saudi Arabia, and the UAE are investing big in water-intensive agriculture projects.

3,190: That smartphone in your hand is soaking wet – maybe (hopefully!) not literally, but it took 3,190 gallons of water to manufacture it. The production of chips and semiconductors – which are what make smartphones smart – is one of the world’s most water-intensive industries.

If the economy is so good, why does it seem so bad?

The US economy grew 5.7% in 2021, the biggest annual growth rate in decades, yet at the beginning of 2022, less than a third of Americans thought it was strong. As the world confronts the converging crises of the lingering pandemic and war in Ukraine, inflation and skyrocketing prices are further contributing to feelings of financial insecurity around the globe.

The latest episode of Living Beyond Borders, a special podcast series from GZERO brought to you by Citi Private Bank, takes a look at why there is still reason for optimism, and what we can expect from US and global markets over the next year. Moderated by Shari Friedman, managing director of climate and sustainability at Eurasia Group, the discussion features David Bailin, chief investment officer and global head of investments at Citi Global Wealth, and Robert Kahn, director of global macroeconomics at Eurasia Group.

Russia’s war in Ukraine hasn’t done the global economy any favors. It has exacerbated the pandemic’s supply chain issues, reducing inventories worldwide. That dip, says Bailin, “distorted the economy further, and with that, inflation took off,” reaching a 40-year high that cracked consumer confidence.

And then came the economic sanctions … which, Kahn says, will likely work to reduce “global activity by three-quarters of a percent to 1% this year.” While that’s not enough to signal a recession in the US, it does mean Europe may suffer in the short term from recession, he adds.

Bailin believes the supply of oil, agricultural products and commodities will improve and meet up with demand in the coming months, signaling to consumers that inflation is coming back down. “That is going to be a brighter moment for the economy.”

In the meantime, consumer negativity is likely to have political implications – everywhere from Brazil to France to the United States. While Emmanuel Macron is expected to win in the second round of the French presidential election on Sunday, far-right candidate Marine Le Pen has done better than expected, largely by resonating with voters concerned by the rising cost of living. In Brazil, meanwhile, a battle is taking shape that will likely have candidates from the “populous ends of the spectrum,” current President Jair Bolsonaro and former President Luiz Inácio Lula da Silva, facing off, Kahn says. And in the US, concerns about the economy are expected to help deliver a win for Republicans in this autumn’s midterm elections.

Because inflation is seen as a localized experience, it puts pressure on politicians and central banks to change policies to address domestic fears. Europe’s 7.5% price growth in March, for example, is pressuring the European Central Bank to switch things up and raise rates, Kahn explains. But when policymakers react very strongly, that can act as a “drag on optimism about the economy on spending behavior.”

Both Bailin and Kahn worry that drastic policy changes could be detrimental. Today, family debts are down and savings are up in the US, which is “a sign of good policy,” says Bailin. But “if the Fed is too aggressive in its fight against inflation,” he says, it “could put the economy in jeopardy.” If it gets it right by raising rates reasonably, however, inflation starts to retract with an economic slowdown, evening out supply and demand.

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The Graphic Truth

According to several indicators, the US economy is doing fine. Joblessness, for instance, is way down, with fewer Americans collecting unemployment benefits than at any time since the late 1960s. Still, inflation has caused the cost of food and fuel in the US to soar to a 40-year high. Polling shows that Americans’ sense of financial security and economic stability is waning – a massive problem for President Joe Biden ahead of the midterm elections. Biden says American companies should help tackle inflation by lowering costs, not wages. But Fed Chair Jerome Powell signaled plans to take action this week, raising expectations of an interest rate hike in May. We take a look at US consumer confidence, which reflects general sentiment about the state of the economy, since 2000.

What We're Watching: Global interest hikes and developing economies, Russia’s war and the US economy

How advanced economy decisions can hurt (or help!) emerging markets

As the US and Europe grapple with inflation at levels unseen since “Eye of the Tiger” was a chart-topper, policymakers in emerging and developing markets, which are also facing high prices, are on edge about what the US Fed and other major central banks are going to do next. After all, hiking interest rates in the advanced economies can prompt investors to pull money out of developing and emerging market countries, which often depend heavily on capital inflows from abroad to keep their economies running smoothly.

And after two years of pandemic-related economic shocks and emergency spending, developing and emerging market economies are more vulnerable than in the past. To take one measure from the IMF’s latest World Economic Outlook, middle-income countries’ average debt to GDP ratio is 20 percentage points higher now than it was a decade ago. For low-income countries, it’s double. The war in Ukraine has only made things worse by further choking outstretched supply chains of food and fuel. But while Central Bankers in the US and Europe will need to tread carefully on interest rates, there are other important steps that their governments can take to ease the pain for low and middle-income countries, says World Bank President David Malpass. Easing import restrictions, particularly for farm and food goods, would not only give a boost to emerging market agriculture exporters – a way to “make friends,” he says – but could also help assuage some of the food price growth that advanced economies are seeing. Doing that, however, is likely to provoke a backlash from powerful farmers' groups in the US and Europe. Would Biden or Brussels have the stomach for it?

Russia’s war vs. America’s economy

For many Americans, Russia’s war in Ukraine seems far away, and its impact on their lives seems minimal. It’s true that Europe, which has far more trade with Russia than the US does, will face more obvious economic blowback from the war and the sanctions imposed on Russia. But in a globalized world, the shock absorption offered by distance is limited. The war’s most obvious impact on the US economy comes with higher fuel prices, which have sharply increased the price Americans pay for gasoline. Higher fuel costs will also raise transportation costs of all kinds. Meanwhile, rising food prices – Russia and Ukraine are both leading food producers, and Russia and neighboring Belarus are leading exporters of fertilizer – have a broader impact on inflation.

Two factors darken the outlook further. First, these upward pressures on prices compound the inflationary pressures already created by the pandemic and its impact on both global economic growth and international supply chains. Second, Russia’s war in Ukraine is headed toward an unstable stalemate that could delay any return to normal for fuel and food costs. To fight this inflation, the US Federal Reserve has embarked on a gradual increase in interest rates that will be felt everywhere, from the housing market to the stock market.

For all these reasons, the war’s economic impact on US consumers will likely prove broad and long-lasting.

The Graphic Truth

Consumers’ perceptions of the economy can cause big shake-ups in European politics. After the sovereign debt crisis (2012-2015), and the subsequent migrant crisis, many Europeans became more susceptible to eurosceptic, populist messages. The effects of the war in Ukraine are being felt acutely in the European Union. The energy sector is in a tailspin, driving fuel prices through the roof. Many analysts say that Europe is experiencing a cost of living crisis. Unsurprisingly, Europeans are gloomier about the state of the economy than at any time since the 2008 recession. We take a look at perceptions of the economy in the EU over the past 22 years.

Hard Numbers: US recession odds, Shanghai port congestion, rising public debt, Japanese fried chicken

35: Economists believe the US economy has a 35% chance of entering a recession next year. Wait, isn't America's GDP still going strong? Yes, but the Federal Reserve is prepping major interest rate hikes to curb rising inflation.

1/5: A fifth of the world's container ships were reportedly stuck this week outside the world's largest port in Shanghai, where lockdown restrictions are beginning to ease. China's zero-COVID policy is causing major supply chain disruptions that will likely slow Chinese GDP growth and have a ripple effect on the global economy.

40: Debt held by national governments now accounts for almost 40% of total money owed, the most in six decades. Although the rise in public borrowing has been led by Western economies and China, many developing countries are the ones deepest in the red because they took on a lot of debt to pay for pandemic stimulus in 2020.