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    Portugal Could Hold an Answer for a Europe Captive to Russian Gas

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    Portugal has no coal mines, oil wells or gas fields. Its impressive hydropower production has been crippled this year by drought. And its long-running disconnect from the rest of Europe’s energy network has earned the country its status as an “energy island.”Yet with Russia withholding natural gas from countries opposed to its invasion of Ukraine, the tiny coastal nation of Portugal is suddenly poised to play a critical role in managing Europe’s looming energy crisis.For years, the Iberian Peninsula was cut off from the web of pipelines and huge supply of cheap Russian gas that power much of Europe. And so Portugal and Spain were compelled to invest heavily in renewable sources of energy like wind, solar and hydropower, and to establish an elaborate system for importing gas from North and West Africa, the United States, and elsewhere.Now, access to these alternate energy sources has taken on new significance. The changed circumstances are shifting the power balances among the 27 members of the European Union, creating opportunities as well as political tensions as the bloc seeks to counter Russia’s energy blackmail, manage the transition to renewables and determine infrastructure investments.The Alto Tamega dam, part of a hydropower facility in northern Portugal that will be operational in 2024.Matilde Viegas for The New York TimesThe urgency of Europe’s task is on display this week. On Wednesday, Russia’s energy monopoly, Gazprom, again suspended already reduced gas deliveries to Germany through its Nord Stream 1 pipeline. With natural gas costing about 10 times what it did a year ago, the European Union has called for an emergency meeting of its energy ministers next week.As Brussels tries to figure out how to manage the crisis, the possibility of funneling more gas to Europe through Portugal and Spain is gaining attention.Portugal and Spain were among the first European nations to build the kind of processing terminals needed to accept boatloads of natural gas in liquefied form and to convert it back into the vapor that could be piped into homes and businesses.This imported liquefied natural gas, or L.N.G., was more expensive than the type much of Europe piped in from Russia. But now that Germany, Italy, Finland and other European nations are frantically seeking to replace Russian gas with substitutes shipped by sea from the United States, North Africa and the Middle East, this disadvantage is an advantage.Solar panels in Sintra. Connecting such panels to Europe’s electricity grid could help ease energy shortages on the continent.Matilde Viegas for The New York TimesTogether, Spain and Portugal account for one-third of Europe’s capacity to process L.N.G. Spain has the most terminals and the biggest, though Portugal has the most strategically located.Its terminal in Sines is the closest of any in Europe to the United States and the Panama Canal; it was the first port in Europe to receive L.N.G. from the United States, in 2016. Even before the war in Ukraine, Washington identified it as a strategically important gateway for energy imports to the rest of Europe.Spain also has an extensive network of pipelines that carry natural gas from Algeria and Nigeria, as well as large storage facilities.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

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    As Russia Chokes Ukraine’s Grain Exports, Romania Tries to Fill In

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    Stopping at the edge of a vast field of barley on his farm in Prundu, 30 miles outside Romania’s capital city of Bucharest, Catalin Corbea pinched off a spiky flowered head from a stalk, rolled it between his hands, and then popped a seed in his mouth and bit down.“Another 10 days to two weeks,” he said, explaining how much time was needed before the crop was ready for harvest.Mr. Corbea, a farmer for nearly three decades, has rarely been through a season like this one. The Russians’ bloody creep into Ukraine, a breadbasket for the world, has caused an upheaval in global grain markets. Coastal blockades have trapped millions of tons of wheat and corn inside Ukraine. With famine stalking Africa, the Middle East and elsewhere in Asia, a frenetic scramble for new suppliers and alternate shipping routes is underway.“Because of the war, there are opportunities for Romanian farmers this year,” Mr. Corbea said through a translator.The question is whether Romania will be able to take advantage of them by expanding its own agricultural sector while helping fill the food gap left by landlocked Ukraine.Catalin Corbea, in his trophy room showing stuffed animals from hunting expeditions, said the war in Ukraine had presented opportunities to Romanian farmers.Cristian Movila for The New York TimesIn many ways, Romania is well positioned. Its port in Constanta, on the western coast of the Black Sea, has provided a critical — although tiny — transit point for Ukrainian grain since the war began. Romania’s own farm output is dwarfed by Ukraine’s, but it is one of the largest grain exporters in the European Union. Last year, it sent 60 percent of its wheat abroad, mostly to Egypt and the rest of the Middle East. This year, the government has allocated 500 million euros ($527 million) to support farming and keep production up.Still, this Eastern European nation faces many challenges: Its farmers, while benefiting from higher prices, are dealing with spiraling costs of diesel, pesticides and fertilizer. Transportation infrastructure across the country and at its ports is neglected and outdated, slowing the transit of its own exports while also stymieing Romania’s efforts to help Ukraine do an end run around Russian blockades.Even before the war, though, the global food system was under stress. Covid-19 and related supply chain blockages had bumped up prices of fuel and fertilizer, while brutal dry spells and unseasonal floods had shrunk harvests.Since the war began, roughly two dozen countries, including India, have tried to bulk up their own food supplies by limiting exports, which in turn has exacerbated global shortages. This year, droughts in Europe, the United States, North Africa and the Horn of Africa have all taken additional tolls on harvests. In Italy, water has been rationed in the farm-producing Po Valley after river levels dropped enough to reveal a barge that had sunk in World War II.Rain was not as plentiful in Prundu as Mr. Corbea would have liked it to be, but the timing was opportune when it did come. He bent down and picked up a fistful of dark, moist soil and caressed it. “This is perfect land,” he said. “This is perfect land,” Mr. Corbea said after picking a handful of soil on his farm in Prundu.Cristian Movila for The New York TimesThunderstorms are in the forecast, but this morning, the seemingly endless bristles of barley flutter under a cloudless cerulean sky.The farm is a family affair, involving Mr. Corbea’s two sons and his brother. They farm 12,355 acres or so, growing rapeseed, corn, wheat, sunflowers and soy as well as barley. Across Romania, yields are not expected to match the record grain production of 29 million metric tons from 2021, but the crop outlook is still good, with plenty available to export.Mr. Corbea slips into the driver’s seat of a white Toyota Land Cruiser and drives through Prundu to visit the cornfields, which will be harvested in the fall. He has been mayor of this town of 3,500 for 14 years and waves to every passing car and pedestrian, including his mother, who is standing in front of her house as he cruises by. The trees and splashes of red-and-pink rose bushes that line every street were planted by and are cared for by Mr. Corbea and his workers.He said he employed 50 people and brought in €10 million a year in sales. In recent years, the farm has invested heavily in technology and irrigation.Amid rows of leafy green corn, a long center-pivot irrigation system is perched like a giant skeletal pterodactyl with its wings outstretched.Because of price rises and better production from the watering equipment he installed, Mr. Corbea said, he expected revenues to increase by €5 million, or 50 percent, in 2022.Investments like Mr. Corbea’s in irrigation and technology are considered crucial for Romania’s agricultural growth to reach its potential.Cristian Movila for The New York TimesThe costs of diesel, pesticides and fertilizer have doubled or tripled, but, at least for now, the prices that Mr. Corbea said he had been able to get for his grain had more than offset those increases.But prices are volatile, he said, and farmers have to make sure that future revenues will cover their investments over the longer term.The calculus has paid off for other large players in the sector. “Profits have increased, you cannot imagine, the biggest ever,” said Ghita Pinca, general manager at Agricover, an agribusiness company in Romania. There is enormous potential for further growth, he said, though it depends on more investment by farmers in irrigation systems, storage facilities and technology.Some smaller farmers like Chipaila Mircea have had a tougher time. Mr. Mircea grows barley, corn and wheat on 1,975 acres in Poarta Alba, about 150 miles from Prundu, near the southeastern tip of Romania and along the canal that links the Black Sea with the Danube River.Drier weather means his output will fall from last year. And with the soaring prices of fertilizer and fuel, he said, he expects his profits to drop as well. Ukrainian exporters have lowered their prices, which has put pressure on what he is selling.Mr. Mircea’s farm is about 15 miles from Constanta port. Normally a major grain and trade hub, the port connects landlocked central and southeastern European countries like Serbia, Hungary, Slovakia, Moldavia and Austria with central and East Asia and the Caucasus region. Last year the port handled 67.5 million tons of cargo, more than a third of it grain. Now, with Odesa’s port closed off, some Ukrainian exports are making their way through Constanta’s complex.Grain from Ukraine being unloaded from a train car in Constanta, a Romanian port on the Black Sea.Cristian Movila for The New York TimesRailway cars, stamped “Cereale” on their sides, spilled Ukrainian corn onto underground conveyor belts, sending up billowing dust clouds last week at the terminal operated by the American food giant Cargill. At a quay operated by COFCO, the largest food and agricultural processor in China, grain was being loaded onto a cargo ship from one of the enormous silos that lined its docks. At COFCO’s entry gate, trucks that displayed Ukraine’s distinctive blue-and-yellow-striped flag on their license plates waited for their cargoes of grain to be inspected before unloading.During a visit to Kyiv last week, Romania’s president, Klaus Iohannis, said that since the beginning of the invasion more than a million tons of Ukrainian grain had passed through Constanta to locations around the world.But logistical problems prevent more grain from making the journey. Ukraine’s rail gauges are wider than those elsewhere in Europe. Shipments have to be transferred at the border to Romanian trains, or each railway car has to be lifted off a Ukrainian undercarriage and wheels to one that can be used on Romanian tracks.Truck traffic in Ukraine has been slowed by backups at border crossings — sometimes lasting days — along with gas shortages and damaged roadways. Russia has targeted export routes, according to Britain’s defense ministry.Romania has its own transit issues. High-speed rail is rare, and the country lacks an extensive highway system. Constanta and the surrounding infrastructure, too, suffer from decades of underinvestment.Bins storing corn, wheat, sunflower seeds and soybeans in Boryspil, Ukraine.Nicole Tung for The New York TimesOver the past couple of months, the Romanian government has plowed money into clearing hundreds of rusted wagons from rail lines and refurbishing tracks that were abandoned when the Communist regime fell in 1989.Still, trucks entering and exiting the port from the highway must share a single-lane roadway. An attendant mans the gate, which has to be lifted for each vehicle.When the bulk of the Romanian harvest begins to arrive at the terminals in the next couple of weeks, the congestion will get significantly worse. Each day, 3,000 to 5,000 trucks will arrive, causing backups for miles on the highway that leads into Constanta, said Cristian Taranu, general manager at the terminals run by the Romanian port operator Umex.Mr. Mircea’s farm is less than a 30-minute drive from Constanta. But “during the busiest periods, my trucks are waiting two, three days” just to enter the port’s complex so they can unload, he said through a translator.That is one reason he is less sanguine than Mr. Corbea is about Romania’s ability to take advantage of farming and export opportunities.“Port Constanta is not prepared for such an opportunity,” Mr. Mircea said. “They don’t have the infrastructure.”Constanta is bracing for backups at its port when the bulk of Romania’s harvest starts arriving in the coming weeks.Cristian Movila for The New York Times More

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    A Weak Euro Heads to an Uncomfortable Milestone: Parity With the Dollar

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    The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

    The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”Also in the dollar’s favor is the aggressive action of the Federal Reserve. With inflation in the United States hovering around its highest rate in four decades, the central bank has ramped up its tightening of monetary policy with successive interest rate increases, and many more are predicted. Traders are betting that U.S. interest rates will climb another 2 percentage points by early next year to 3 percent, the highest level since 2007.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Weakened Euro May Become Equal to the U.S. Dollar

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    The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

    The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Russia’s Economic Outlook Grows ‘Especially Gloomy’ as Prices Soar

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    LONDON — After sanctions hobbled production at its assembly plant in Kaliningrad, the Russian automaker Avtotor announced a lottery for free 10-acre plots of land — and the chance to buy seed potatoes — so employees could grow their own food in the westernmost fringe of the Russian empire during “the difficult economic situation.”In Moscow, shoppers complained that a kilogram of bananas had shot up to 100 rubles from 60, while in Irkutsk, an industrial city in Siberia, the price of tampons at a store doubled to $7.Banks have shortened receipts in response to a paper shortage. Clothing manufacturers said they were running out of buttons.“The economic prospects for Russia are especially gloomy,” the Bank of Finland said in an analysis this month. “By initiating a brutal war against Ukraine, Russia has chosen to become much poorer and less influential in economic terms.”Even the Central Bank of Russia has predicted a staggering inflation rate between 18 and 23 percent this year, and a falloff in total output of as much as 10 percent.It is not easy to figure out the impact of the war and sanctions on the Russian economy at a time when even using the words “war” and “invasion” are illegal. President Vladimir V. Putin has insisted that the economy is weathering the measures imposed by the United States, Europe and others.Financial maneuvers taken by Moscow helped blunt the economic damage initially. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency, and recently was able to lower rates to 14 percent. The ruble is trading at its highest level in more than two years.Empty shelves in a supermarket in Moscow in March. Food prices have shot up, especially for items like imported fruit.Vlad Karkov/SOPA Images/LightRocket, via Getty ImagesAnd even though Russia has had to sell oil at a discount, dizzying increases in global prices are causing tax revenues from oil to surge past $180 billion this year despite production cuts, according to Rystad Energy. Natural gas deliveries will add another $80 billion to Moscow’s treasury.In any case, Mr. Putin has shown few signs that pressure from abroad will push him to scale back military strikes against Ukraine.Still, Avtotor’s vegetable patch lottery and what it says about the vulnerabilities facing the Russian people, along with shortages and price increases, are signs of the economic distress that is gripping some Russian businesses and workers since the war started nearly three months ago.Analysts say that the rift with many of the world’s largest trading partners and technological powerhouses will inflict deep and lasting damage on the Russian economy.“The really hard times for the Russian economy are still in front of us,” said Laura Solanko, a senior adviser at the Bank of Finland Institute for Emerging Economies.The stock of supplies and spare parts that are keeping businesses humming will run out in a few months, Ms. Solanko said. At the same time, a lack of sophisticated technology and investment from abroad will hamper Russia’s productive capacity going forward.The Lukoil refinery in Volgograd. Russia has had to sell oil at a discount, but its tax revenues have risen along with prices.ReutersThe Russian Central Bank has already acknowledged that consumer demand and lending are on a downhill slide, and that “businesses are experiencing considerable difficulties in production and logistics.”Ivan Khokhlov, who co-founded 12Storeez, a clothing brand that evolved from a showroom in his apartment in Yekaterinburg to a major company with 1,000 employees and 46 stores, is contending with the problem firsthand.“With every new wave of sanctions, it becomes harder to produce our product on time,” Mr. Khokhlov said. The company’s bank account in Europe was still blocked because of sanctions shortly after the invasion, while logistical disruptions had forced him to raise prices.“We face delays, disruptions and price increases,” he said. “As logistics with Europe gets destroyed, we rely more on China, which has its own difficulties too.”Hundreds of foreign firms have already curtailed their business in or withdrawn altogether from Russia, according to an accounting kept by the Yale School of Management. And the exodus of companies continued this week with McDonald’s. The company said that after three decades, it planned to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia.“I passed the very first McDonald’s that opened in Russia in the ’90s,” Artem Komolyatov, a 31-year-old tech worker in Moscow, said recently. “Now it’s completely empty. Lonely. The sign still hangs. But inside it’s all blocked off. It’s completely dead.”Nearby two police officers in bulletproof vests and automatic rifles stood guard, he said, ready to head off any protesters.In Leningradsky railway station, at one of the few franchises that remained open on Monday, customers lined up for more than an hour for a last taste of McDonald’s hamburgers and fries.The French automaker Renault also announced a deal with the Russian government to leave the country on Monday, although it includes an option to repurchase its stake within six years. And the Finnish paper company, Stora Enso, said it was divesting itself of three corrugated packaging plants in Russia.A closed McDonald’s in Podolsk, outside Moscow, on Monday. The company said this week it was putting its Russian business up for sale.Maxim Shipenkov/EPA, via ShutterstockMore profound damage to the structure of the Russian economy is likely to mount in the coming years even in the moneymaking energy sector.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Economic Headwinds Mount as Leaders Weigh Costs of Confronting Russia

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    BRUSSELS — The world economy is heading into a potentially grim period as rising costs, shortages of food and other commodities and Russia’s continuing invasion of Ukraine threaten to slow economic growth and bring about a painful global slump.Two years after the coronavirus pandemic emerged and left much of the globe in a state of paralysis, policymakers are grappling with ongoing challenges, including clogged supply chains, lockdowns in China and the prospect of an energy crisis as nations wean themselves off Russian oil and gas. Those colliding forces have some economists starting to worry about a global recession as different corners of the world find their economies battered by events.Finding ways to avoid a global slowdown while continuing to exert pressure on Russia for its war in Ukraine will be the primary focus of finance ministers from the Group of 7 nations who are convening in Bonn, Germany, this week.The economic challenges that governments around the globe are facing could begin to chip away at the united front that Western nations have maintained in confronting Russia’s aggression, including sweeping sanctions aimed at crippling its economy and efforts to reduce reliance on Russian energy.Policymakers are balancing delicate trade-offs as they consider how to isolate Russia, support Ukraine and keep their own economies afloat at a moment when prices are rising rapidly and growth is slowing.Central banks around the world are beginning to raise interest rates to help tame rapid inflation, moves that will temper economic growth by raising borrowing costs and could lead to higher unemployment.Global growth is expected to slow to 3.6 percent this year, the International Monetary Fund projected in April, down from the 4.4 percent it forecast before both Russia’s invasion of Ukraine and China’s zero-Covid lockdowns.On Monday, the European Commission released its own revised economic forecast, showing a slowdown in growth to 2.7 percent this year from the 4 percent estimated in its winter report. At the same time, inflation is hitting record levels and is expected to average 6.8 percent for the year. Some Eastern European countries are in for much steeper increases, with Poland, Estonia, the Czech Republic, Bulgaria and Lithuania all facing inflation rates in excess of 11 percent.Last week, Christine Lagarde, president of the European Central Bank, signaled a possible increase in interest rates in July, the first such move in more than a decade. In a speech in Slovenia, Ms. Lagarde compared Europe to a man “who from fate receives blow on blow.”Eswar Prasad, the former head of the International Monetary Fund’s China division, summed up the challenges facing the G7 nations, saying that its “policymakers are caught in the bind that any tightening of screws on Russia by limiting energy purchases worsens inflation and hurts growth in their economies.”“Such sanctions, for all the moral justification underpinning them, are exacting an increasingly heavy economic toll that in turn could have domestic political consequences for G7 leaders,” he added.Still, the United States is expected to press its allies to continue isolating Russia and to deliver more economic aid to Ukraine despite their own economic troubles. Officials are also expected to discuss the merits of imposing tariffs on Russian energy exports ahead of a proposed European oil embargo that the United States fears could send prices skyrocketing by limiting supplies. Policymakers will also discuss whether to press countries such as India to roll back export restrictions on crucial food products that are worsening already high prices.Against this backdrop is the growing urgency to help sustain Ukraine’s economy, which the International Monetary Fund has said needs an estimated $5 billion a month in aid to keep government operations running. The U.S. Congress is close to passing a $40 billion aid package for Ukraine that will cover some of these costs, but Treasury Secretary Janet L. Yellen has called on her European counterparts to provide more financial help.Finance ministers are expected to consider other measures for providing Ukraine with relief. There is increasing interest in the idea of seizing some of the approximately $300 billion in Russian central bank reserves that the United States and its allies have immobilized and using that money to help fund Ukraine’s reconstruction. Treasury Department officials are considering the idea, but they have trepidations about the legality of such a move and the possibility that it would raise doubts about the United States as a safe place to store assets.Ahead of the G7 meeting this week, American officials saw the economic challenges facing Europe firsthand. During a stop to meet with top officials in Warsaw on Monday, Ms. Yellen acknowledged the toll that the conflict in Ukraine is having on the economy of Poland, where officials have raised interest rates sharply to combat inflation. Poland has absorbed more than three million Ukrainian refugees and has faced a cutoff in gas exports from Russia.“They have to deal with a tighter monetary policy just as countries around the world and the United States are,” Ms. Yellen told reporters. “At a time when Poland is committed to large expenditures to shore up its security, it is a difficult balancing act.”A downturn may be unavoidable in some countries, and economists are weighing multiple factors as they gauge the likelihood of a recession, including a severe slowdown in China related to continuing Covid lockdowns.The European Commission, in its economic report, said the E.U. “is first in line among advanced economies to take a hit,” because of its proximity to Ukraine and its dependence on Russian energy. At the same time, it has absorbed more than five million refugees in less than three months.Deutsche Bank analysts said this week that they thought a recession in Europe was unlikely. By contrast, Carl B. Weinberg, chief economist at High Frequency Economics, warned in a note on Monday that with consumer demand and output falling, “Germany’s economy is headed for recession.” Analysts at Capital Economics predicted that Germany, Italy and Britain are likely to face recessions, meaning there is a “reasonable chance” that the broader eurozone will also face one, defined as two consecutive quarters of falling output.Vicky Redwood, senior economic adviser at Capital Economics, warned that more aggressive interest rate increases by central banks could lead to a global contraction.“If inflation expectations and inflation prove more stubborn than we expect, and interest rates need to rise further as a result, then a recession most probably will be on the cards,” Ms. Redwood wrote in a note to clients this week.A bakery in Al Hasakah, Syria. The interruption of wheat exports from Ukraine and Russia is causing food prices to spiral and increasing global hunger, particularly in Africa and the Middle East.Diego Ibarra Sanchez for The New York TimesThe major culprit is energy prices. In Germany, which has been most dependent on Russian fuel among the major economies in Europe, the squeeze is being acutely felt by its industrial-heavy business sector as well as consumers.Russian gas shipments “underpin the competitiveness of our industry,” Martin Brudermüller, the chief executive of the chemical giant BASF, said at the company’s annual general meeting last month.While calling to decrease its dependence, Mr. Brudermüller nevertheless warned that “if the natural gas supply from Russia were to suddenly stop, it would cause irreversible economic damage” and possibly force a stop in production.Russia-Ukraine War: Key DevelopmentsCard 1 of 4In Mariupol. More

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    Treasury Secretary Yellen Looks to Get Global Tax Deal Back on Track

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    The Treasury secretary is traveling to Warsaw, Brussels and Bonn, Germany, this week at an uncertain time for the global economy.WARSAW — Treasury Secretary Janet L. Yellen arrived in Europe this week to join U.S. allies in confronting multiple threats to the world economy: Russia’s war in Ukraine, soaring inflation and food shortages.But one of Ms. Yellen’s first orders of business during a stop in Poland will be trying to get the global tax deal that she brokered last year back on track after months of fledgling deliberations about how to enact it. The two-pronged pact among more than 130 countries that was reached last October aimed to eliminate corporate tax havens by enacting a 15 percent global minimum tax. It would also shift taxing rights among countries so that corporations pay taxes based on where their goods and services are sold rather than where their headquarters are.Turning the agreement into a reality is proving to be a steep challenge.The European Union has already delayed its timeline for putting the tax changes in place by a year and progress has been halted over objections by Poland, which last month vetoed a plan to enact the new tax rate by the end of next year. Despite initially signing on to the deal, Poland has voiced reservations, including whether the minimum tax will actually prevent big tech companies from seeking out lower-tax jurisdictions. Polish officials have also expressed concern that the two parts of the tax agreement are moving ahead at different paces, as well as trepidation about the impact that raising its tax rate will have on its economy at a time when the country is absorbing waves of Ukrainian refugees.In meetings in Warsaw on Monday, Ms. Yellen pressed top Polish officials to let the process move ahead, making clear that the tax deal continues to be a priority of the United States. She is meeting with Poland’s prime minister, Mateusz Morawiecki, and the finance minister, Magdalena Rzeczkowska.According to the Treasury Department, Ms Yellen told Mr. Morawiecki that international tax reform and the global minimum tax would raise crucial revenues to benefit the citizens of both Poland and the United States.The meetings come at the beginning of a weeklong trip that also includes stops in Brussels and Bonn, Germany, which is hosting the Group of 7 finance ministers’ summit. Ms. Yellen will be focusing on coordinating sanctions against Russia with European allies and addressing growing concerns about how disruptions to energy and food supplies could affect the global economy.Poland’s finance minister, Magdalena Rzeczkowska, former head of the country’s tax agency. Her country has raised concerns over potential loopholes and the impact of the global tax plan.Radek Pietruszka/EPA, via ShutterstockThe tax agreement has been one of Ms. Yellen’s top priories as Treasury secretary. Gaining Poland’s support is critical because the European Union requires consensus among its member states to enact the tax changes.“I think the reality of turning a political commitment into binding domestic legislation is a lot more complex,” said Manal Corwin, a Treasury official in the Obama administration who now heads the Washington national tax practice at KPMG. “The E.U. has moved and gotten over most of the objections, but they still have Poland and it’s not clear whether they’re going to be able to get the last vote.”With President Emmanuel Macron of France heading the European Union’s rotating presidency until June, his administration was eager to get a deal implemented. But at a meeting of European finance ministers in early April, Poland became the sole holdout, saying there were no ironclad guarantees that big multinational companies wouldn’t still be able to take advantage of low-tax jurisdictions if the two parts of the agreement did not move ahead in tandem, undercutting the global effort to avoid a race to the bottom when it comes to corporate taxation.Poland’s stance was sharply criticized by European officials, particularly France, whose finance minister, Bruno Le Maire, suggested that Warsaw was instead holding up a final accord in retaliation for a Europe-wide political dispute. Poland has threatened to veto measures requiring unanimous E.U. votes because of an earlier decision by Brussels to block pandemic recovery funds for Poland.The European Union had refused to disburse billions in aid to Poland since late last year, citing separate concerns over Warsaw’s interference with the independence of its judicial system. Last week, on the eve of Ms. Yellen’s visit to Poland, the European Commission came up with an 11th-hour deal unlocking 36 billion euros in pandemic recovery funds for Poland, which pledged to meet certain milestones such as judiciary and economic reforms, in return for the money.Negotiators from around the world have been working for months to resolve technical details of the agreement, such as what kinds of income would be subject to the new taxes and how the deal would be enforced. Failure to finalize the agreement would likely mean the further proliferation of the digital services taxes that European countries have imposed on American technology giants, much to the dismay of those firms and the Biden administration, which has threatened to impose tariffs on nations that adopt their own levies.“It’s fluid, it’s moving, it’s a moving target,” Pascal Saint-Amans, the director of the center for tax policy and administration at the Organization for Economic Cooperation and Development, said of the negotiations at the D.C. Bar’s annual tax conference this month. “There is an extremely ambitious timeline.”Countries like Ireland, with a historically low corporate tax rate, have been wary of increasing their rates if others do not follow suit, so it has been important to ensure that there is a common understanding of the new tax rules to avoid opening the door to new loopholes.“The idea of having multiple countries put the same rules in place is a new concept in tax,” said Barbara Angus, the global tax policy leader at Ernst & Young and a former chief tax counsel on the House Ways and Means Committee. She added that it was important to have a multilateral forum so countries could agree on how to interpret and apply the levies.Yet, while Ms. Yellen is pushing foreign nations to adopt the tax agreement, it remains unclear whether the United States will be able to pass its own legislation to come into compliance.An earlier effort by House Democrats to adopt a tax plan that would satisfy terms of the agreement fell apart in the Senate, where Democrats continue to disagree over the scope and cost of a tax and spending bill that President Biden has proposed.Rep. Kevin Brady of Texas, the ranking member on the House Ways and Means Committee, has led Republican opposition to an international tax agreement, saying it makes the United States “less competitive.”Anna Moneymaker/Getty ImagesRepublicans in Congress have made clear that they are unlikely to support any agreement that the Biden administration has brokered and called on the Treasury Department to consult with them before trying to move ahead.“As it is, there’s very little chance of a global minimum tax agreement — there is already resistance to approval at the E.U., which should be the easiest part of these discussions, and it will only get harder going forward,” said Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee. “Meanwhile, here in the U.S., there’s little political support for an agreement that makes the U.S. less competitive and takes a big bite out of our tax base.”Ms. Yellen is expected to convey to her counterparts this week that the agreement is still a priority for the Biden administration and that she hopes that the United States can make the tax changes needed to comply with the agreement in a small spending package later this year, according to a person familiar with the negotiations. 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    Russian Shipping Traffic Remains Strong as Sanctions Take Time to Bite

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    WASHINGTON — Shipping traffic in and out of Russia has remained relatively strong in the past few months as companies have raced to fulfill contracts for purchases of energy and other goods before the full force of global sanctions goes into effect.With the European Union poised to introduce a ban on Russian oil in the coming months, that situation could change significantly. But so far, data show that while commerce with Russia has been reduced in many cases, it has yet to be crippled.Volumes of crude and oil products shipped out of Russian ports, for example, climbed to 25 million metric tons in April, data from the shipping tracker Refinitiv showed, up from around 24 million metric tons in December, January, February and March, and mostly above the levels of the last two years.Jim Mitchell, the head of oil research for the Americas at Refinitiv, said that Russia’s outgoing shipments in April had been buoyed by the global economic recovery from the pandemic, and that they did not yet reflect the impact of sanctions and other restrictions on Russia issued after its invasion of Ukraine on Feb. 24.Crude oil typically trades 45 to 60 days ahead of delivery, he said, meaning that changes to behavior following the Russian invasion were still working their way through the system.“The volume has been slow to decline, because these were contracts that have already been set,” Mr. Mitchell said. Defaulting on such contracts is “a nightmare for both sides,” he said, adding, “which means that even in the current environment nobody really wants to breach a contract.”Russia has stopped publishing data on its imports and exports since Western governments united to announce their array of sanctions and other restrictions. Exports of oil or gas that leave Russia through pipelines can also be difficult for outside firms to verify.But the global activities of the massive vessels that call on Russian ports to pick up and deliver containers of consumer products or bulk-loads of grain and oil are easier to monitor. Ships are required to transmit their identity, position, course and other information through automatic tracking systems, which are monitored by a variety of firms like Refinitiv, MarineTraffic, Kpler and others.These firms say that shipping traffic was relatively robust in March and April, despite the extraordinary tensions with Russia since its invasion of Ukraine. That reflects both how long some of the sanctions issued by the West are taking to come into effect and an enduring profit motive for trading with Russia, especially after prices for its energy products and commodities have cratered.Data from MarineTraffic, for example, a platform that shows the live location of ships around the world using those on-ship tracking systems, indicates that traffic from Russia’s major ports declined after the invasion but did not plummet. The number of container ships, tankers and bulkers — the three main types of vessels that move energy and consumer products — arriving and leaving Russian ports was down about 23 percent in March and April compared with the year earlier.“The reality is that the sanctions haven’t been so difficult to maneuver around,” said Georgios Hatzimanolis, who analyzes global shipping for MarineTraffic.Tracking by Lloyd’s List Intelligence, a maritime information service, shows similar trends. The number of bulk carriers, which transport loose cargo like grain, coal and fertilizer, that sailed from Russian ports in the five weeks after the invasion was down only 6 percent from the five-week period before the invasion, according to the service.In the weeks following the invasion, Russia’s trade with China and Japan was broadly stable, while the number of bulk carriers headed to South Korea, Egypt and Turkey actually increased, their data showed.“There’s still a lot of traffic back and forth,” said Sebastian Villyn, the head of risk and compliance data at Lloyd’s List Intelligence. “We haven’t really seen a drop.”Those figures contrast somewhat with statements from global leaders, who have emphasized the crippling nature of the sanctions. Treasury Secretary Janet L. Yellen said on Thursday that the Russian economy was “absolutely reeling,” pointing to estimates that it faces a contraction of 10 percent this year and double-digit inflation. Earlier this week, Ms. Yellen said that the Treasury Department was continuing to deliberate about whether to extend an exemption in its sanctions that has allowed American financial institutions and investors to keep processing Russian bond payments. Speaking at a Senate hearing, she said that officials were actively working to determine the “consequences and spillovers” of allowing the license to expire on May 25, which would likely lead to Russia’s first default on its foreign debt in more than a century.Global sanctions on Russia continue to expand in both their scope and their impact, especially as Europe, a major customer of Russian energy, moves to wean itself off the country’s oil and coal. Trade data suggest that shipments into Russia of high-value products like semiconductors and airplane parts — which are crucial for the military’s ability to wage war — have plummeted because of export controls issued by the United States and its allies.But many sanctions have been targeted at certain strategic goods, or exempted energy products — which are Russia’s major exports — to avoid causing more pain to consumers at a time of rapid price increases, disrupted supply chains and a growing global food crisis.Truckers lined up to cross into Panemune, Lithuania, near the Russian port of Kaliningrad last month.Paulius Peleckis/Getty ImagesSo far, Western governments have levied an array of financial restrictions, including banning transactions with Russia’s central bank and sovereign wealth fund, freezing the assets of many Russian officials and oligarchs, and cutting off Russian banks from international transactions. Canada and the United States have already banned imports of Russian energy, and also prohibited Russian ships from calling at their ports, but the countries are not among Russia’s largest energy customers.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More