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The pain of the war in Ukraine begins to impact the economy

New York (CNN Business) — As Russian soldiers press on Ukraine, increasingly desperate Ukrainians run out of food and medicine. The economic consequences of the invasion begin to spread to the rest of the world as well.

Global growth forecasts are being lowered and the chance of a US recession in 2023 has risen to 35%, according to Goldman Sachs.

But war in Europe is no longer a theoretical and future concern that economists discuss in their research and notes to investors. It is tangible. Is here. And it is causing pain to millions of people.

Sanctions and other supply chain disruptions have sent consumer prices soaring around the world, while oil and other commodity prices have risen. Rising gasoline and diesel prices are also driving up food costs, raising fears the world is on the brink of a hunger crisis.

The French government is studying the possibility of granting food vouchers to help residents with the cost of food. A commodity trading company said diesel is so scarce it may soon have to be rationed.

Desperation in Ukraine

Millions of refugees are leaving Ukraine with little ability to pay for their needs. Inside Ukraine, some villages have less than four days’ worth of food, the Mercy Corps aid agency said on Tuesday, warning that the country’s humanitarian aid system “is totally broken.”

At least 70% of the population of Kharkiv and Sumy are totally dependent on aid, estimated Steve Gordon, Mercy Corps humanitarian response adviser in Ukraine.

In the southern Ukrainian city of Kherson, food and medical supplies have almost run out, according to Ukrainian Foreign Ministry spokesman Oleg Nikolenko.

food insecurity

The domino effect of the Russian invasion of Ukraine has pushed up food prices. As the price of gas increases, the supply of fertilizers is reduced. This has pushed up prices for wheat, corn, vegetable oils and soybeans, which is particularly worrying for countries already struggling with food insecurity.

But developed economies are also starting to feel the pain.

French President Emmanuel Macron has said his government is considering food vouchers to help low- and middle-income families afford to eat, calling the problem a “global food crisis.”

War in Ukraine would leave millions without food 0:48

“I want to establish a [sistema] of food vouchers to help the most modest households and the middle class who face these additional costs,” Macron said in an interview with France Bleu radio on Tuesday.

World wheat prices have soared as supplies from Russia and Ukraine have been largely isolated from the rest of the world. Together, these countries export 30% of the world’s wheat. Fertilizer supply is also tight as energy prices have soared.

The repercussions have even reached the world’s largest economy. US food prices rose 1% in February, the largest monthly increase since April 2020. Over the past 12 months, overall US food prices rose 7.9%, the largest increase since July 1981.

Egypt fixed the price of bread this week to limit price rises caused by supply chain disruptions. In the three weeks since the Russian invasion of Ukraine, the price of unsubsidized bread had risen as much as 25% in some bakeries.

Diesel rationing?

Energy prices have soared around the world following the rejection of Russian crude. The country’s oil has been banned by the US, Canada, UK and Australia, and Europe’s oil companies (Shell, Neste, Total) are also turning their backs on it.

If Europe were to adopt a full embargo, Russia would be forced to cut its supplies by 3 million barrels a day, putting the world at risk of extreme oil shortages unless OPEC countries rapidly increase production. , something to which they have not been willing.

The CEO of Dutch commodity firm Vitol said this week that the withdrawal of Russian oil from the Western market will force drivers and truckers to ration diesel.

“What everyone is worried about is going to be diesel supply. Europe imports about half of its diesel from Russia and about half from the Middle East,” said Russell Hardy, CEO of Vitol, at the Global Subject Matter Summit. Primes of the FT in Lausanne, Switzerland, on Tuesday. “That systemic diesel deficit is there.”

Meanwhile, the UK government will cut taxes to help keep fuel affordable. Finance Minister Rishi Sunak said Wednesday that he will cut taxes on gasoline and diesel for a year. The government will also raise the income threshold for a payroll tax by some 30 million people.

— CNN’s Matt Egan, Alex Hardie, Chris Liakos and Antonia Mortensen contributed to this report.

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