Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

In recent days, Germany, Sweden, France and Britain all announced sweeping billion-dollar relief programs to ease the strain on households and businesses, along with rationing and conservation plans.

The cost of all these measures would be enormous, at a time when government debt levels are already staggering. The worry about perilously high debt prompted the International Monetary Fund this week to issue a proposal to reform the European Union’s framework for government public spending and deficits.

Still, a pitiless and unyielding reality remains: a lack of energy that countries can afford.

At current prices, there is simply not enough to produce the steel, lumber, microchips, glass, cotton, plastic, chemicals and electricity that go into making the food, home heat, garage doors, tampons, bicycles, baby formula, wine glasses and more that consumers want.

The root of the shortage predates the Ukraine war.

Commodity prices started rising in 2020 as countries began emerging from pandemic restrictions, noted Sven Smit, a senior partner at the consulting firm McKinsey Company. In the United States alone, consumers were, in effect, buying $1 trillion more goods than expected, based on spending patterns before coronavirus hit.

And the sudden switch in spending on products like new kitchen tiles and cars rather than services like restaurant dining and entertainment added to the problem because more energy and materials are needed to make them.

Article source: https://www.nytimes.com/2022/09/08/business/economy/russia-ukraine-global-economy.html