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Americans are concerned about their economy, and the global economic outlook is worse

SACHA PFEIFFER, HOST:

In the last 2 1/2 years, we've often been reminded that what happens halfway around the world can affect the prices you pay at home. A factory in China can shut down due to COVID cases, so it makes fewer products, and they become more expensive. A war in Ukraine can disrupt the international markets for food and oil, enough that some people will skimp and others may starve. These days, international economists are seeing storm clouds over much of the planet. Inflation is high. Growth is stalling. And what governments are doing to provide relief to their citizens may come with their own painful side effects. We're going to talk through that this afternoon with NPR correspondents on three continents - Rob Schmitz in Germany, Lauren Frayer in India and Scott Horsley here in the U.S. Hi to all three of you.

ROB SCHMITZ, BYLINE: Hello.

SCOTT HORSLEY, BYLINE: Good to be with you.

LAUREN FRAYER, BYLINE: Hi there.

PFEIFFER: Scott, let's start with these gloomy economic forecasts. What are they saying?

HORSLEY: You know, policymakers from throughout the world were here in Washington not long ago, and it was a really sobering session. The International Monetary Fund says it's seeing a slowdown in all the major economic engines of the global economy - the U.S., China and Europe. And while inflation may have come down a little bit in some parts of the globe, it's still way too high. IMF economist Pierre-Olivier Gourinchas warns things are likely to get worse in the coming year. And in many parts of the planet, he says it's going to feel like a recession.

PIERRE-OLIVIER GOURINCHAS: We're going to have this combination of lower growth and still high inflation. And in many countries, when we looked under the hood, in about a third of the global economy, we're going to see contractions.

HORSLEY: The IMF expects the global economy will grow just 2.7% next year. That's about half a point lower than this year's growth. And it's worse than what forecasters were expecting as recently as this summer.

PFEIFFER: Scott, why do they think things are getting worse?

HORSLEY: Of course, one of the big factors is the war in Ukraine, which continues to disrupt energy and food supplies in many parts of the world. We also continue to feel the effects of the pandemic, with lingering lockdowns in China, for example. Here in the U.S., inflation remains stubbornly high. It's begun to spread from things like used cars and gasoline to rent and medical care, where prices tend to be more sticky. And so far, people are still spending pretty freely, but we are beginning to see some belt-tightening. Retiree Miriam Garcia, who lives in South Florida, says she's gotten more careful about what she buys at the supermarket. And she's even been cutting back on family vacations.

MIRAM GARCIA: We were going to take the grandchildren to Disney World, and we ended up not taking them because it was that expensive. I mean, it's - the prices have skyrocketed everywhere.

HORSLEY: Of course, the Federal Reserve has been raising interest rates in an effort to curb inflation. And you can see the effects of that in the housing market. Builders are not building as many new houses these days, and sales of existing homes have been falling for the last eight months. So far, the U.S. job market has stayed really strong. Unemployment is still very low, but that could change as interest rates continue to climb.

PFEIFFER: And all of you know that inflation is not just a U.S. problem. Rob, you're in Germany. That's Europe's largest economy, and the war has caused an energy crisis. How bad has it gotten in Germany, and how is Germany dealing with this?

SCHMITZ: Inflation in Germany is at its highest in more than 70 years, and you notice this each time that you head to the grocery store. Groceries in Germany cost around 20% more than they did a year ago. Germans are also noticing this in their energy bills. Electricity costs are nearly 50% more than a year ago, and those are expected to rise even more this winter. Natural gas for heating is double what it cost a year ago. The list just goes on.

We're starting to see social unrest in eastern Germany because of the rising prices, weekly protests in cities throughout this part of the country. Germany's government has pledged at least $200 billion to help people pay their energy bills as part of an energy price cap package. Of course, the underlying reason for these rising costs is Russia's war in Ukraine and Germany's decision during the era of Angela Merkel to rely on Russia for half of all of its natural gas. Germany's economy minister says Russia's war in Ukraine will push the country into a recession next year. And we're seeing the same situation throughout Europe.

PFEIFFER: And Rob, for some families, rising prices are an aggravation. For others, it's a real financial problem. How concerned are families and businesses you've been talking with about these rising prices?

SCHMITZ: Yeah, I've been able to travel around Germany, and I've been on the road the past two months talking to families and businesses about this, and they're all feeling the pinch and are very worried about their futures. I think the one person I spoke to who really hit home what's at stake for Germany was Heiko Mennerich. He's the head of energy at Evonik, a company that runs a chemical park that employs more than 10,000 people outside of Dortmund. Here's what he said about rising energy prices.

HEIKO MENNERICH: If you compare the energy price level in Europe with the energy price level in the U.S., we are suffering under the competition. So I fear really what happens to the European industry if we have this high energy price level for a longer period of time.

SCHMITZ: And Sacha, what he means here is that German companies are paying at least three times more for electricity than U.S. companies pay. And for a company like Evonik, whose main competitors are American, this means they will no longer be able to compete on price. And so many companies that employ millions of Germans are not only going to lose market share, but some will just simply go out of business and be forced to lay workers off. Economists warn that Europe's largest economy could see a wave of insolvencies starting this winter.

PFEIFFER: The sad reality is that any time the cost of food and fuel goes up, it's the poor who are hardest hit. Lauren, I would love to get your perspective on this. You're based in Mumbai for NPR. You cover South Asia. What effects are you seeing there of rising food and fuel prices?

FRAYER: Yeah. So I just want to preface this by saying we're talking about something serious, and we're talking about poverty and economic pain. But I don't know if you can hear behind me - it's Diwali, the Festival of Lights here - huge holiday. And, you know, despite the economic pain, Indians are still partying. So there's a massive Diwali party going on across the street here. Nevertheless, a couple days ago, the Global Hunger Index came out. It's an annual survey that showed that India had dropped six spots to 107 out of 121 countries. That's a ranking of starvation, of child mortality and of undernourishment. And I met a rickshaw driver who's an example of that undernourishment. His name is Ibrahim Naikodi. He's 43, father of three. And the cost of filling up his rickshaw's gas tank is 10% higher just in the past month. He's raised his fares, passed on those cost to his clients, but he's barely breaking even. Here's what he had to say.

IBRAHIM NAIKODI: (Speaking Hindi).

FRAYER: He's speaking in Hindi there, and he's saying basically he's had to buy less food for his family. He can't afford health care. He's struggling to pay his kids' school fees. He said his wife has never worked outside the home and is now thinking of going to get a job. And India has 1.4 billion people, and many of them, like Ibrahim, are buying less, eating less, producing less. And that just reverberates through the country's GDP.

During COVID lockdown, Indian GDP dropped more than 20%. The government does not want a repeat of that, and so it's taking drastic measures. It's restricted exports of wheat and rice to try to stabilize domestic prices. India's one of the largest grain growers in the world. It's a country that the world economy was looking to to make up a shortfall from Ukrainian grain. And instead, India's restricted exports. And that's hurt some of its neighbors, some even poorer countries, which buy grain from India. We're talking about - like, 1 in 4 human beings lives in South Asia, so this is a huge chunk of the global population that's at risk here.

PFEIFFER: One in four - a quarter of the world...

FRAYER: Yeah.

PFEIFFER: ...Lives in South Asia.

FRAYER: Yeah.

PFEIFFER: That's amazing. And it's some of the world's poorest people. But the region is also home to emerging markets that have seen real growth in recent decades. Lauren, is that progress in jeopardy now?

FRAYER: Yeah. I mean, that's a really good point because growth actually is not as slow here as it is elsewhere. Scott mentioned the IMF's forecast. For 2023, the forecast for emerging and developing economies in Asia is nearly 5%. That's not bad when you consider it's about 1% for the U.S. and half that for the Eurozone. But it's really lopsided when you have inflation and consumer prices up as much as 73%, which is the case in places like Sri Lanka.

I want to talk about Bangladesh because Bangladesh's power plants mostly run on imported fuel, which is now being rationed, so the country's seeing rolling blackouts. You know, Europe is lowering its thermostats this winter. But in Bangladesh, the entire power grid went down earlier this month. All the lights went off in the - almost in the entire country at the same time. And so that really hurts productivity, especially in the country's garment factories, which have been a real engine of economic development. They've helped pull millions of people out of poverty, especially first-time female workers, and now there's a risk of that progress backsliding.

PFEIFFER: You know, to deal with inflation, we're seeing central banks around the world raising interest rates like the Fed has done. But that comes with the risk of slowing down an economy too much, perhaps leading to recession. Scott Horsley, how big a threat is that?

HORSLEY: It's certainly a possibility. You've got policymakers in a bunch of different parts of the world, each trying to deal with their own problems, but their actions don't necessarily stop at their own borders. And if they're not careful, they can have unintended ripple effects. For example, rising interest rates in the U.S. have increased the value of the dollar relative to other currencies. That's a plus for American consumers, but it's a real challenge for people in other countries who see their prices go up more. Rising interest rates also make it more expensive for governments that have to borrow money.

The Fed says it's mindful of those international spillover effects, but it's determined to bring down inflation. And the IMF has basically endorsed that approach. Even as Gourinchas warns of possible fallout around the globe from central banks cracking down too hard on inflation, he says that's outweighed by the danger of not cracking down hard enough.

GOURINCHAS: If they fail to bring down inflation, eventually, that's going to be a bigger cost to the economy because either inflation would become entrenched - and that would be a disaster - or they will have to do more later in order to bring down inflation. And they will have to face more severe headwinds doing that, so the overall cost to the economy would also be larger.

HORSLEY: In other words, forecasters are saying better to weather these economic storm clouds now in hopes of winning a sunny, stable price environment down the road. But they acknowledge it could be messy in the meantime.

PFEIFFER: Very messy, very complicated. That's NPR's Scott Horsley in Washington, Lauren Frayer in Mumbai, India and Rob Schmitz in Berlin, Germany. Thank you, all three of you.

SCHMITZ: Thank you.

FRAYER: Thanks for having us. Happy Diwali.

(LAUGHTER) Transcript provided by NPR, Copyright NPR.

Rob Schmitz is NPR's international correspondent based in Berlin, where he covers the human stories of a vast region reckoning with its past while it tries to guide the world toward a brighter future. From his base in the heart of Europe, Schmitz has covered Germany's levelheaded management of the COVID-19 pandemic, the rise of right-wing nationalist politics in Poland and creeping Chinese government influence inside the Czech Republic.
Lauren Frayer covers India for NPR News. In June 2018, she opened a new NPR bureau in India's biggest city, its financial center, and the heart of Bollywood—Mumbai.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.
Lisa Lambert
Martin Patience
Sacha Pfeiffer is a correspondent for NPR's Investigations team and an occasional guest host for some of NPR's national shows.