Eleven Themes for the New Global Economy, Part 2

My column yesterday outlined six categories of winners and losers spawned by the current disruptive global economic environment as it transfers incomes and assets. Here are five more that result from the repricing of goods and assets.

1. Slowing global growth and disruptions from Russia’s invasion of Ukraine along with additional drags on the U.S. economy. Importers and U.S. retailers built inventories late last year in anticipation of exuberant retail sales. In the third quarter, 2.2 percentage points of the 2.3% real GDP growth was from inventory-building and 5.4 percentage points of the fourth quarter’s 6.9% annual rate rise. But real retail sales have been falling and consumers are pushing back against rising prices by shifting to lower-cost house brands and cutting back on nonessentials. Liquidating excess inventories this year could well have mirror-image effects on the economy, resulting in several quarters of negative real GDP growth.

The greatest economic declines will be in Russia and Ukraine, according to the Organization for Economic Cooperation and Development, with Russian domestic demand falling 15% in 2022 from last year and demand in Ukraine down 40%. Russia and Ukraine account for 30% of global wheat exports and 15% of corn exports. Wheat prices have almost doubled since the start of the war, fertilizer prices are up by more than 75% and corn prices by over 40%. But Ukrainian agriculture exports are expected to drop by at least 20% this year due to Western sanctions against Russia and shippers’ worldwide unwillingness to move cargo.

Slower global economic growth and the Russian invasion of Ukraine has spawned many losers. These include Russian and Ukrainian food producers who can't sell their food nor all their energy, and consumers who can't buy these commodities, especially developing economies where food and energy account for big shares of household spending. Commodity producers in the West are big winners. Resource-rich Canada also stands to gain from increased exports of crude oil, uranium, nickel and wheat. North American fertilizer producers are winners and have advantages over European rivals due to access to cheap natural gas.

Food prices in the U.S. are also leaping. In response, consumers are shifting from national brands to lower-priced private labels that have wider profit margins for major grocers. American farmers will no doubt plant fence-row to fence-row this year to take advantage of soaring crop prices. And as their incomes jump, so will their spending on fertilizers and farm equipment.