Analysis | A greater economic toll from Ukraine war looms

In its first seven weeks, the war already has triggered massive Ukrainian refugee flows, boosted inflation by driving up prices on food and oil, and made a European economic slump more likely.

U.S. and allied financial sanctions designed to punish Moscow have put a chokehold on the Russian economy, sparking an exodus by hundreds of multinational companies and pushing the government to the brink of its first default on foreign-currency debt since the Bolshevik Revolution.

• Now with U.S. and NATO officials warning that the fighting in Ukraine could continue for months or even years, a greater economic toll looms.

Greg Daco, chief economist for Ernst & Young, said a lengthy war — and a further ratcheting up of allied sanctions on Russia — could strip one percentage point to two percentage points off of global growth. Wall Street economists expect the global economy to expand by 3.5 percent this year, according to an April survey by Bloomberg, down from 4 percent in March.

“The longer this situation goes on, the more significant the erosion becomes,” Daco said.

On Sunday, the World Bank warned that “the war has added to mounting concerns about a sharp global slowdown.”

Risk of hunger, political instability

The war’s battlefields overlap with some of the globe’s most important cropland.

Protracted fighting in Ukraine could interrupt the annual cycle of sowing and reaping on Ukrainian farms, disrupting the global trade in food beyond the end of 2022.

The United Nations’ Food and Agriculture Organization last week cut its forecast for global cereals trade to 469 million tons, down 14.6 million tons from its March estimate, citing the interruption of exports from Ukraine and Russia. Lower trade volumes will crimp food imports across much of the Middle East and North Africa, raising concerns over hunger and political instability.

• The war’s impact comes as the global economy’s two main engines — the United States and China — confront their own problems. China’s zero-tolerance covid policy is upending supply chains and raising doubts about the government’s 5.5 percent growth target.

In the United States, the Federal Reserve is struggling to cool off the highest inflation in 40 years. By driving up oil prices and consumers’ expectations of price increases, the war is making it more likely that the Fed will aggressively hike rates, increasing recession risks, said Mark Zandi, Moody’s Analytics’ chief economist.

“The fallout of the Russian invasion on the U.S. economy has become meaningfully more problematic,” Zandi wrote in a note to clients on Monday.

Russia headed for deep downturn

Russia has largely weathered the sanctions’ initial effects, with the ruble rebounding from its 40 percent plunge to nearly regain its prewar value. The Russian central bank last week cut its main interest rate to 17 percent after doubling it to 20 percent to defend the ruble.

• Yet, the country is headed for a deep downturn, and cracks are appearing in its financial foundation. S&P Global Ratings late Friday said the Russian government was in “selective default” on its U.S. dollar-denominated bonds after making interest and principal payments on April 4 in rubles.

The Treasury Department — in a tightening of U.S. sanctions — blocked U.S. banks from receiving a dollar payment from Russia. The department initially had said U.S. investors could accept dollar payments on Russian debt until May 25.

Finance Minister Anton Siluanov told the Russian newspaper Izvestia his government will not issue any new bonds this year, fearing the required interest rate would be “cosmic,” and planned legal action if forced into default.

S&P said it did not expect the Russian government to meet its payment obligations within the 30-day grace period, saying “sanctions on Russia are likely to be further increased.”

Indeed, as the war grinds on, reports of atrocities by Russian soldiers are drawing calls for a tougher allied response.

Europe’s payments for Russian energy products represent a lifeline for Russian President Vladimir Putin, replenishing the hard currency reserves that sanctions squeezed.

Reflecting soaring oil and gas prices, Russia’s central bank said Monday that the surplus in the country’s current account — the broadest trade measure — rose to $58.2 billion in the first quarter. That was the largest figure since 1994 and more than twice the $22.5 billion reported in the same period last year.

E.U. officials met Monday to discuss potential steps to reduce the financial flows to Moscow, even as Germany and other nations that are heavily dependent upon Russia for energy remain reluctant.

“We have imposed massive sanctions already but more needs to be done on the energy sector, incl oil,” Josep Borrell, the E.U.’s top diplomat, tweeted over the weekend.

What’s happening now

Multiple people shot, at least 13 injured in Brooklyn subway station

“Fire officials arrived on the scene to find multiple injured victims as well as several undetonated devices in the area, according to a New York Fire Department spokesperson,” Kim Bellware reports.

New York Lt. Gov. Benjamin arrested in campaign finance scheme

“Lt. Gov. Brian A. Benjamin of New York, the state’s second-in-command to Gov. Kathy Hochul, surrendered early Tuesday morning to face a federal bribery conspiracy indictment in connection with a scheme to funnel fraudulent donations to a previous campaign, according to people with knowledge of the matter,” the New York Times’s William K. Rashbaum and Nicholas Fandos report.

Prices climbed 8.5% in March, compared to last year, amid growing fears of economic slowdown

“The inflation data, released Tuesday by the Bureau of Labor Statistics, showed prices rose 1.2 percent in March compared with February. Price increases for gas, shelter and food were the largest contributors to inflation, underscoring how higher prices have become inescapable for households and businesses simply trying to get by,” Rachel Siegel reports.

Oklahoma governor signs bill criminalizing abortion

“The bill, which passed the Senate last year and the House earlier this month, makes performing an abortion a felony. Anyone convicted would face up to 10 years in prison and a $100,000 fine. The law makes an exception if the life of the mother is in danger, but has no exception for rape or incest,” Eugene Scott reports.

The war in Ukraine

Putin calls Ukraine war a ‘tragedy’ but insists Russia ‘had no choice’

“Russian President Vladimir Putin — speaking alongside his ally Belarusian President Alexander Lukashenko — called the situation in Ukraine ‘a tragedy’ but insisted that Moscow had ‘no choice’ but to invade. Putin said negotiations with Ukraine had reached an ‘impasse’ — and the economic sanctions imposed on his country by nations around the world had ‘failed,’ ” Amy Cheng, Jennifer Hassan, Adela Suliman and Annabelle Timsit report.

Other key updates:

Lunchtime reads from The Post

War impels many in Ukraine to abandon Russian language and culture

“For many, the time has come to separate Ukraine linguistically, and psychologically, from its northern neighbor. The two languages are similar, like Portuguese and Spanish, and conversations often take place in which one person speaks Ukrainian and the other Russian,” David L. Stern, Robert Klemko and Robyn Dixon report.

“But now, debates have erupted on social media on the need to wean the country off Russian, and posts have multiplied of those announcing their switch to speaking only Ukrainian.”

… and beyond

U.S. weighs shift to support Hague court as it investigates Russian atrocities

“The Biden team strongly wants to see President Vladimir V. Putin of Russia and others in his military chain of command held to account. And many are said to consider the court — which was created by a global treaty two decades ago as a venue for prosecuting war crimes, crimes against humanity and genocide — the body most capable of achieving that,” the NYT’s Charlie Savage reports.

“But laws from 1999 and 2002, enacted by a Congress wary that the court might investigate Americans, limit the government’s ability to provide support. And the United States has long objected to any exercise of jurisdiction by the court over citizens of countries that are not part of the treaty that created it — like the United States, but also Russia.”

‘It’s not the end’: The children who survived Bucha’s horror

“Bucha witnessed some of the ghastliest scenes of Russia’s invasion, and almost no children have been seen in its silent streets since then. The many bright playgrounds in the once popular community with good schools on a far edge of the capital, Kyiv, are empty,” the Associated Press‘s Cara Anna reports.

“The Russians used a children’s camp in Bucha as an execution ground, and bloodstains and bullet holes mark a basement. On a ledge near the camp entrance, Russian soldiers placed a toy tank. It appeared to be connected to fishing wire — a possible booby trap in the most vulnerable of places.”

The Biden agenda

With Biden visiting a central Iowa ethanol plant, producers hope he’ll suspend summer E15 sales ban

“President Joe Biden is expected to announce in a Tuesday visit to central Iowa that his administration will suspend a ban on summer sales of gasoline blended with 15% ethanol,” the Des Moines Register’s Donnelle Eller reports.

“The White House said Biden will speak Tuesday at a Poet ethanol plant in Menlo, a town of less than 400 people 50 miles west of Des Moines. Iowa is the nation’s top producer of renewable fuel and the corn used to make it.”

Biden’s new favorite to be Fed bank cop: Michael Barr

“Barr, now dean of the University of Michigan’s public policy school, played a major role in the crafting of financial safeguards in the wake of the 2008 Wall Street meltdown and has been a longtime consumer advocate,” Politico’s Victoria Guida reports.

“A central question is whether he can garner enough votes to be confirmed as Fed vice chair for supervision. He was previously a leading candidate for another position regulating banks, comptroller of the currency, but faced fierce opposition from progressive activists who criticized his ties to upstart finance companies like Lending Club and Ripple. Cornell Law professor Saule Omarova was eventually nominated for the role and then rejected by the Senate because she had advocated for the government to take a dominant role in finance.”

White House expected to name new commander to lead allied forces in Europe

“A top American Army general in Europe is expected to be elevated to lead all U.S. and allied forces on the continent, U.S. officials said, marking the biggest change to NATO military leadership since Russia invaded Ukraine in February,” the Wall Street Journal’s Nancy A. Youssef and Gordon Lubold report.

“The Pentagon is also set to name a new general to lead Special Operation forces, the officials said. Both would replace commanders who are expected to retire this year as part of a normal rotation of commanders.”

Biden turns to stemming gun crimes as violence rises

“President Biden on Monday used a Rose Garden ceremony to announce a crackdown on guns that can be made from kits and to introduce his new pick to head the Bureau of Alcohol, Tobacco, Firearms and Explosives, two initiatives intended to show he wants to stem crime as gun violence continues to surge,” Cleve R. Wootson Jr. and Annie Linskey report.

“The twin moves, which come as Republicans have been attacking Democrats on crime, were long anticipated and were cheered Monday by gun control advocates. But they are far short of what many of them have hoped for with the Biden administration and Congress controlled by Democrats.”

The U.S. State Department orders nonemergency workers and their families to leave Shanghai

“The U.S. State Department said on Monday that it had ordered all nonemergency U.S. consulate employees and their families to leave Shanghai as a lockdown aimed at containing a surge in Omicron coronavirus cases stretched into its second week,” the NYT’s John Yoon reports.

Ukraine’s stuck wheat harvest, visualized

Even amid a calamitous war, Ukraine is on track to harvest most of its vast grain fields this summer — though there are mounting concerns that war-related supply shortages may reduce output by as much as a third. The country has 30 million tons of wheat in storage, too. But with ports closed because of the war, vast amounts of wheat can’t reach nations that rely on it.

Hot on the left

Larry Summers: ‘Often wrong, never in doubt’

“Larry Summers, spurned for a Biden administration post, is famously vindictive. Lately, he has been taking victory laps, reminding everyone of how right he was and how mistaken everyone else was,” Robert Kuttner writes for the American Prospect.

“Let’s first give Larry partial credit on the big picture. Inflation did accelerate faster than most other economists forecast, and the Fed will raise interest rates more than Fed Chair Jay Powell predicted last fall. But Summers drastically overstates the degree to which the inflation is the result of excessive macroeconomic stimulus, as well as exaggerating his own prescience.”

Hot on the right

Putin wants to break NATO. Republicans want to help him.

Last week, 63 House Republicans (nearly a third of the GOP conference) voted against a resolution of support for NATO, William Saletan writes for the Bulwark.

“The House vote, taken on April 5, is a warning sign. Putin may be losing ground in Ukraine, but he’s gaining ground in the U.S. Congress. Three years ago, 22 House Republicans voted against pro-NATO legislation. That number has nearly tripled.”

Saying the quiet part out loud: “The GOP’s turn against NATO is particularly worrisome because Congress has been warned, explicitly and repeatedly, about Putin’s goal of dissolving the alliance.”

Today in Washington

Biden will visit the Poet bioprocessing plant in Menlo, Iowa, at 3:15 p.m., where he’ll make an announcement about fighting inflation and investing in rural communities at 3:45 p.m.

Biden will depart Des Moines at 6:10 p.m., arriving back at the White House at 8:40 p.m.

In closing

Colbert on Trump’s Dr. Oz endorsement

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Thanks for reading. See you tomorrow.