Global growth prospects are ebbing amid war in Ukraine and slowdown in China

FRANKFURT—Economic growth is slowing across much of the world as companies struggle to deal with a looming slowdown in China and soaring prices, exacerbated by Russia’s war in Ukraine.

Purchasing manager surveys conducted in recent weeks point to weaker growth in major economies like Germany and the UK in April, while activity elsewhere in Europe and Asia remains solid.

While service companies are benefiting from the lifting of Covid-19 restrictions and households are spending some of the savings they amassed during the pandemic, manufacturing companies are grappling with higher prices and supply chain disruptions.

The war in Ukraine dealt a stagflationary blow as the global economy recovered strongly, albeit unevenly, from the shock of the pandemic. The swift recovery, supported by aggressive fiscal and monetary stimulus, has reduced unemployment in advanced economies and increased pressure on global supply chains strained by intermittent Covid-19 outbreaks. All of this has pushed inflation on both sides of the Atlantic to multi-decade highs.

In Germany, Europe’s largest economy and manufacturing hub, growth slowed to a three-month low in April, S&P Global surveys showed on Friday. The first drop in manufacturing output since June 2020 offset an acceleration in service sector growth to its fastest pace since August. The automotive sector was particularly hard hit, with surveys showing an increase and a significant drop in production.

Still, the surveys as a whole pointed to solid growth in the 19-nation eurozone. That could encourage the European Central Bank to proceed with aggressive rate hikes to curb skyrocketing inflation, economists said. ECB officials have signaled they could start raising rates as early as July.

Such moves amplify headwinds bouncing off global financial markets and weighing on asset prices. Borrowing costs are already rising sharply around the world as investors anticipate rate hikes from the Federal Reserve and other major central banks.

Federal Reserve Chair Jerome Powell hinted Thursday that the central bank is likely to hike interest rates by half a percentage point at its May meeting. Photo: Samuel Corum/Getty Images

The International Monetary Fund on Tuesday cut its forecast for global economic growth this year by almost a percentage point, warning that the war in Ukraine is adding to the economic strains caused by the pandemic. The institution warned that recent lockdowns in key manufacturing and trade hubs in China are likely to exacerbate supply disruptions elsewhere.

China’s zero-tolerance approach to Covid-19 is hurting consumer spending and hurting industrial production in an economy grappling with a housing shortage and regulatory crackdown on sectors like technology and education.

“What we are seeing in China is that consumption is falling short; it’s not recovering as strongly as it needs to,” IMF Managing Director Kristalina Georgieva said on Wednesday.

Germany’s Bavarian Motor Works Inc

said its global sales fell about 6% in the first quarter compared to the same period last year. BMW blamed “the geopolitical situation in Eastern Europe and the Covid lockdowns in China”.

Rolf Breidenbach, CEO of the German automotive supplier Hella GmbH & Co. KGaA, said: “There are still massive supply bottlenecks for certain electronic components and materials and the development of the coronavirus pandemic also continues to entail considerable risks, especially in the Chinese market. “

“It is expected that price increases will continue, especially for commodities, materials, energy and logistics,” he added.

Germany’s Bundesbank warned on Friday that an embargo on Russian energy imports would reduce the country’s economic output by about 5% this year, triggering a recession and a further rise in inflation. European officials are currently discussing plans to phase out Russian oil imports. Germany gets more than half of its natural gas imports from Russia.

In the UK, S&P Global surveys pointed to a significant slowdown in economic growth in April. Businesses said the rising cost of living and economic uncertainty stemming from the war in Ukraine had hurt customer demand. Business optimism has slipped to its lowest level since October 2020.

“Companies are more cautious about hiring and spending as demand cools and the outlook darkens, suggesting the economy’s slowdown needs to continue,” said Chris Williamson, chief business economist at S&P Global.

According to official data released on Friday, UK retail sales fell an unexpected 1.4% in March, while consumer confidence fell to the second-lowest on record in April.

“Britain is on the brink of recession before inflation hits 8% or more later this year,” said Emma-Lou Montgomery, deputy director at Fidelity International.

The sunflower – usually seen as a symbol of hope and peace in Ukraine – has become a symbol of rising food inflation since the Russian invasion began. WSJ’s Shelby Holliday explains why a global sunflower oil shortage is driving cooking oil prices to record highs. Photo: Alexander Ryumin/Zuma Press

In France, growth rose to the strongest level since January 2018 as a modest rise in factory production was accompanied by the biggest surge in services activity since the beginning of this year, S&P Global said. France’s economy is less dependent than Germany’s on manufacturing and Russian energy.

The French cosmetics company L’Oréal SA

reported a nearly one-fifth year-over-year increase in quarterly sales to about 9.1 billion euros, or about $9.9 billion, driven primarily by sales in North America. The fashion label Hermès International SCA recorded an increase in sales of around a third to around 2.8 billion euros in the same period.

“Despite the record fall in real wages, consumers still seem keen to spend some of their savings accumulated during the lockdown now that restrictions have been eased,” said Bert Colijn, an economist at ING Bank.

For the eurozone as a whole, growth accelerated in April and hiring picked up. Business activity for service providers grew at the fastest pace since August, led by a boom in tourism and leisure. Virus containment measures across the eurozone in April were the most relaxed since the pandemic began, according to S&P Global.

However, analysts warned that services activity was likely to slow in the coming months as high inflation weighed on consumer spending and potentially created a stagflationary environment of high inflation and near-zero growth.

“With inflation currently rampant, it’s hard to imagine sustained post-pandemic recovery efforts offsetting the negative impact of rising prices,” said Joe Hayes, economist at S&P Global.

In Australia and Japan, surveys pointed to stronger growth, but business confidence fell amid concerns about rising costs.

“I think the official figures actually underestimate the true extent of inflation,” said Tesla CEO Elon Musk. “Inflation is likely to continue for at least the rest of this year… in some cases we’re seeing suppliers demanding cost increases of 20% to 30% on parts from last year through the end of this year.”

write to Tom Fairless at

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