NEW YORK – Last week, the United States could feel the magnitude of the superimposition of crises that plague the global economy, and the fear of recession, job losses, lack of food and the collapse of the capital market grows.

The root of so much suffering is a force so primitive and evident that it hardly deserves attention anymore: the pandemic. But that force is far from fading, and it places public policy planners in the face of grave uncertainty. The tools they have were designed for common crises, not for this rare mix of shrinking economy with rampant inflation.

The big economies, such as the United States and France, released their latest inflation data: it was the worst June in three decadeswith astronomical increases in a wide range of products.

These are ominous figures that will probably push central banks to apply more drastic increases in their interest rates to try to curb prices, a course of action that is almost certain to bring unemployment, hit financial markets and embarrass poor countries in debt crisis.

The day before yesterday, China reported that its economy – the second largest on the planet – grew just 0.4% between April and June compared to the same period last year. That anemic performance by the standards of the past decade also casts a shadow over the horizon for dozens of countries with heavy trade with China, including the United States. It also confirms that the global economy has lost its lungs.

The specter of slowing economic growth combined with rising prices has raised the use of a much-feared word that was commonplace in the 1970s, the last time the world went through a similar situation: stagflation.

Most of the problems that haunt the global economy are a consequence of the reaction to Covid-19 and the economic shock that it brought.although they have been worsened by a later disturbance: Russia’s disastrous attack on Ukraine, which blew up food, fertilizer and energy supplies.

“The pandemic not only generated disruptions in the production and transportation of goods, the original source of the current inflationary process, but also in how and where we work, how and where we educate our children, and global migration patternssaid Julia Coronado, an economist at the University of Texas at Austin, during a debate convened by the Brookings Institution in Washington. “Almost every aspect of our lives was disrupted by the pandemic, and then a war in Ukraine had to be added to that.”

It was the pandemic that prompted governments to impose restrictions to limit its spread, complicating the work of factories from China to Germany to Mexico. And when homebound people began shopping online for a record amount of goods – exercise machines, appliances and electronics – that exceeded manufacturing and shipping capacity, the major supply chain disruption occurred.

The resulting product shortage drove up prices. Firms in highly concentrated industries, from meat production to shipping, exploited their dominant position to rack up record profits.

From the United States to Europe, the pandemic pushed governments to free up billions of dollars of emergency public spending to mitigate unemployment and bankruptcy. Many economists now argue that they injected a lot of money, stimulating purchasing power to the point of fueling inflation. Critics also say that The US Federal Reserve – the central bank of the United States – was slow to raise interest rates.

Now central banks are trying to catch up and are moving steadily forward, raising rates at a good pace to try to tamp down inflation, while at the same time fueling fears that such moves could trigger a recession.

The pandemic also explains the disturbing economic slowdown in Chinawhich is likely to deepen the global shortage of industrial products and at the same time limit the exports of many countries, from auto parts made in Thailand to soybeans harvested in Brazil.

Y Russia’s offensive in Ukraine was the great amplifier of the crisis. International sanctions against the Kremlin restricted the commercialization of Russia’s huge oil and natural gas reserves, but the consequent impact on global supply sent energy prices skyrocketing.

The price of a Brent barrel increased by almost 33% in the first three months of the waralthough in recent weeks there has been a change in trend, as the market assumes that lower economic growth will also translate into lower energy demand.

Almost 30% of the gas that Germany’s economy needs to function comes from Russia. If you lose access to Russian gas, an imminent possibility, Germany will almost certainly enter a recession, according to economists. It is the same fate that awaits the entire continent.

“For Europe, the risk of a recession is concrete,” Oxford Economics, a British research firm, said in its report last week.

The European Central Bank will meet on Thursday amid apprehensive markets, and the prospect of an economic downturn further complicating the painful decisions it has to make.

Typically, when an economy heads into recession, what a central bank does is cut interest rates, to make credit cheaper and thus stimulate borrowing, spending and employment. But Europe is facing not only a slowdown in growth, but also a runaway inflationa diagnosis that typically calls for a rate hike to curb spending.

Raising rates would support the euro, which has lost more than 10% of its value against the dollar so far this year, but it would also raise the cost of imports in the 19 eurozone countries, adding to inflation.

The most serious danger, however, is faced by poor and middle-income countries, especially those suffering from the burden of their debt, such as Pakistan, Ghana and El Salvador.

When central banks in rich countries raise rates to curb spending, they are also inviting investors to leave emerging countrieswhere the risks are greater, and to take refuge in solid assets, such as the government bonds of the United States and Germany, which now pay higher interest rates than before.

From South Africa to Indonesia and Thailand, the capital exodus depreciated the value of weak currencies and forced households and businesses to pay more for key imports such as food and fuel.

Perhaps the most important variable that will determine the evolution of the facts is the one at the origin of the problem: the pandemic.

The imminent arrival of winter in the northern hemisphere could bring another wave of infections, especially due to the unequal distribution of vaccines against Covid, which left a large part of humanity vulnerable, with the consequent risk of new variants emerging.

As long as Covid-19 continues to be a threat, people will feel less willing to work in person and consume indoors. Many will give up getting on a plane, sleeping in hotel rooms, or sitting among strangers in a theater.

Ever since the world was hit by this public health catastrophe, more than two years ago, it has always been said that the ultimate threat to the economy was the pandemic itself. And although public policy planners now focus on inflation, malnutrition, recession and a looming endless war, the above statement remains true and truer than ever.

“We continue to pay the costs of the pandemic”said Kjersti Haugland, chief economist at DNB Markets, a Norwegian investment bank. “We cannot afford to look the other way and deny it.”

By Peter Goodman

Translation of Jaime Arrambide