“The political message is greater than the economic hit,” said Chiao Chun, a former trade negotiator for the Taiwanese government.

Even though about 90 percent of Taiwan’s imported gravel and sand comes from China, most of that is manufactured. China accounted for only about 11 percent of Taiwan’s natural sand imports in the first half of this year, according to the Bureau of Mines.

The two types of Taiwanese fish exports that China restricted last week — chilled white striped hairtail and frozen horse mackerel — are collectively worth about $22 million, less than half the value of the Taiwanese grouper trade that was banned earlier this year. They are also less dependent on the Chinese market.

As for Taiwan’s half-a-billion-dollar citrus industry, its shipments to China account for only 1.1 percent of the island’s total agricultural exports, according to Taiwan’s Agriculture Council. A popular theory is that Beijing singled out citrus farmers because most orchards are in southern Taiwan, a stronghold for the governing political party, the Democratic Progressive Party, a longtime target of Beijing’s anger.

Future bans may become more targeted to punish industries in counties that are D.P.P. strongholds, said Thomas J. Shattuck, an expert on Taiwan at the University of Pennsylvania’s Perry World House. There may also be less retaliation against counties run by the Kuomintang opposition party “in an attempt to put a finger on the scale for Taiwan’s local, and even national, elections,” he added.

increasingly indispensable node in the global supply chains for smartphones, cars and other keystones of modern life. One producer, the Taiwan Semiconductor Manufacturing Company, makes roughly 90 percent of the world’s most advanced semiconductors, and sells them to both China and the West.

simulated a blockade of Taiwan.

Even though some of the exercises took place in the Taiwan Strait, a key artery for international shipping, they did not disrupt access to ports in Taiwan or southern China, said Tan Hua Joo, an analyst at Linerlytica, a company in Singapore that tracks data on the container shipping industry. He added that port congestion would build only if the strait was completely blocked, port access was restricted or port operations were hampered by a labor or equipment shortage.

“None of these are happening at the moment,” he said.

Vessels that chose to avoid the Taiwan Strait last week because of the Chinese military’s “chest beating” activities would have faced a 12- to 18-hour delay, an inconvenience that would generally be considered manageable, said Niels Rasmussen, the chief shipping analyst at Bimco, an international shipping association.

If Beijing were to escalate tensions in the future, it would indicate that it was willing to put at risk China’s own economy as well as its trade and relations with Japan, South Korea, Europe and the United States, Mr. Rasmussen said by phone from his office near Copenhagen.

“That’s just difficult to accept that they would take that decision,” he added. “But then again, I didn’t expect Russia to invade Ukraine.”

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China says it is in communication with U.S. over Pelosi’s expected Taiwan visit

BEIJING, Aug 2 (Reuters) – China has been in communication with the United States over U.S. House of Representatives Speaker Nancy Pelosi’s expected visit to Taiwan, Chinese foreign ministry spokesperson Hua Chunying said on Tuesday.

Pelosi kicked off a tour of four Asian countries on Monday in Singapore amid intense speculation that she may risk the wrath of Beijing by also visiting self-ruled Taiwan. read more

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Reporting by Yew Lun Tian in Beijing, writing by Eduardo Baptista, editing by Andrew Cawthorne

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Ukraine Live Updates: Brittney Griner Is Expected to Appear in Russian Court for End of Her Trial

Credit…Pool photo by Alexei Druzhinin

Amid heightened tensions surrounding Taiwan, President Volodymyr Zelensky of Ukraine on Wednesday stressed the importance of Chinese neutrality over the war in his country as Russia finds itself increasingly isolated by the West.

“I would like China to join the unified world position on the tyranny of Russia against Ukraine,” Mr. Zelensky said during a meeting with thousands of students organized by the Australian National University. “As for now, China is balancing and indeed has neutrality. I will be honest: This neutrality is better than if China would join Russia.”

Mr. Zelensky said in an interview with the South China Morning Post, a Hong Kong newspaper, that he would like to speak with China’s leader, Xi Jinping. “I had one conversation with Xi Jinping that was a year ago,” he said in the interview, published Thursday. “Since the beginning of the large-scale aggression on Feb. 24, we have asked officially for a conversation.”

Reflecting the delicacy of the moment, Ukrainian officials have been largely silent on the high-stakes visit this week of Speaker Nancy Pelosi to Taiwan. The Kremlin on Tuesday said her visit to Taiwan “provokes the situation” over the island.

The U.S. secretary of state, Antony J. Blinken, pressed China last month to join the United States, which is trying to assemble a global effort to punish Moscow for its aggression in Ukraine, and “stand up” against Russia’s war. In response, the Chinese foreign minister, Wang Yi, said that Beijing was neutral and criticized the United States for what he called “China phobia” and policies that offered “a dead end.”

From the outset of the war, Washington was able, with the threat of heavy sanctions, to dissuade China from providing weapons and economic assistance to Russia. China claims it is neutral because it has refrained from such explicit support.

In the South China Morning Post interview, Mr. Zelensky suggested that China could use its economic heft to counter Russia. “I’m confident, I’m sure that without the Chinese market for the Russian Federation, Russia would be feeling complete economic isolation,” he said.

Mr. Zelensky’s remarks at the Australian National University event came in response to a student’s question, and he offered a nuanced answer that recognized the geopolitical realities of the moment.

His government, he said, works tirelessly to persuade nations around the world to come together to isolate Russia. “Every day Russia loses more allies,” he said. But each nation, he said, makes its own calculations.

“I believe the people of China will make a prudent choice,” he said. “It’s important for us that China will not help Russia.”

He made the same appeal to the students that he has to leaders from around the world over the past five months — pointing to the atrocities committed by Russian forces and asking what would become of the world order if Moscow succeeded in imposing its will on a sovereign nation through brute force.

When asked by a student what has been the hardest part of leading a nation at war, Mr. Zelensky said it was understanding what people are capable of doing — both the heroism of those defending their homes, he said, and the horrors visited upon them by the invading army.

“I never thought that people are capable of those things,” he said.

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Live Updates: As Pelosi Departs Taiwan, Threat of Military Standoff With China Looms

Credit…Ann Wang/Reuters

After weeks of silence ahead of a high-stakes visit to Taiwan, Speaker Nancy Pelosi was anything but understated on Wednesday during a day of high-profile meetings, in which she offered support for Taiwan and irked China.

In a pair of morning meetings that were partly broadcast online, Ms. Pelosi met with Taiwanese lawmakers and then with Taiwan’s president, Tsai Ing-wen, to whom she offered assurances of United States support despite threats from China.

“Today the world faces a choice between democracy and autocracy,” Ms. Pelosi said. “America’s determination to preserve democracy here in Taiwan and around the world remains ironclad.”

The meetings, though light on substance, were widely welcomed in Taiwan as a symbolic victory. Ms. Pelosi’s trip made her the highest-ranking active member of the United States government to visit the island in 25 years and offered a rare moment of international support for the self-ruled democratic island, which China has worked relentlessly to isolate.

They also presented an affront to China. Ms. Pelosi, who headed to South Korea late Wednesday afternoon, also met with human rights leaders in Taiwan and toured a human rights museum. It was in keeping with her long history of poking China in the eye. She also brought economic assurances, calling a trade deal between Taiwan and the United States hopefully imminent and holding a cordial meeting with the chairman of the Taiwan chip giant T.S.M.C.

The trip took place against the backdrop of increasingly heated warnings from China, which claims Taiwan as its territory. Beijing condemned the speaker’s visit in strong terms, responding with plans for military exercises near Taiwan. It may also damage a push by the White House to shore up support against China from key allies in the region who analysts say have felt sidelined by the trip.

On Wednesday, Hua Chunying, a spokeswoman for the Chinese foreign ministry, told a regular news conference in Beijing that more punishments for the United and Taiwan would follow from Ms. Pelosi’s visit.

“As for the specific countermeasures, what I can tell you is that they’ll include everything that should be included,” Ms. Hua said, according to People’s Daily. “The measures in question will be firm, vigorous and effective, and the U.S. side and Taiwan independence forces will continue feeling them.”

Yet as Ms. Pelosi toured Taipei, the capital, at times an almost carnival atmosphere followed. Hundreds turned out to watch her plane land, Taipei’s tallest building was illuminated with welcome messages, and protesters and supporters greeted her at her hotel, and then on Wednesday followed her to the legislature and at a human rights museum. Many cheered and held up supportive banners, while others denounced her for stirring up tensions with China.

When Ms. Pelosi arrived at Taiwan’s legislature with a police escort, a group offering support on one side of the building held up banners welcoming her. A gathering of pro-China demonstrators on the other held up signs calling her an “arsonist” and accusing her of interfering in China’s internal affairs.

A mood that was often celebratory in Taiwan was far more menacing across the strait separating China from Taiwan with the real potential for a military showdown.

China’s military has planned a series of live-fire drills, starting on Thursday, that would mark a direct challenge to what Taiwan defines as its coastline. Coordinates for the drills indicated that they could take place as close as 10 miles from Taiwan’s coast, well within the area that Taiwan says is a part of its territorial waters and closer than previous tests during a standoff 26 years ago.

On Taiwanese social media, jubilance sat alongside anxiety over what could be the riskiest military standoff with China in a generation. Some posted pictures of China’s military exercises and expressed concern. Eric Liu, a sales manager at a food company in central Taiwan, said he felt both exhilaration and worry.

“It’s unprecedented for Taiwan and my generation of Taiwanese,” Mr. Liu, 26, said in an interview during Ms. Pelosi’s visit. “I felt quite excited, and also sensed the danger.”

“I believe a war in the Taiwan Strait is inevitable, but I don’t want to see it happen anytime soon,” he added.

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IMF says Sri Lanka needs to talk with China about debt restructuring

International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the IMF/World Bank annual meetings in Washington, U.S., October 14, 2017. REUTERS/Yuri Gripas/File Photo

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LONDON, July 27 (Reuters) – The International Monetary Fund (IMF) said Sri Lanka should kick off debt restructuring talks with its bilateral lender China, while the island state’s government seeks a financing loan from the Washington-based fund.

“China is a big creditor, and Sri Lanka has to engage proactively with it on a debt restructuring,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, told Reuters in an interview on Tuesday.

The island of 22 million is currently engulfed by its most severe economic and political crisis in recent history.

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Six-time prime minister Ranil Wickremesinghe was recently appointed as president after a popular uprising ousted his predecessor following months of severe shortages of fuel, food and medicines. read more

The government recently decided to restrict fuel imports for 12 months. read more

The country owes Beijing some $6.5 billion in financing including development bank loans and a central bank swap, according to data from the Institute of International Finance (IFF).

The world’s second-largest economy has invested in projects such as highways, a port, an airport and a coal power plant. Japan and India are also bilateral creditors to Sri Lanka.

“Sri Lanka has to engage with its creditors, both private and official bilateral, on a debt workout to ensure debt sustainability is restored,” Srinivasan said, as he pointed out that technical talks on a new IMF program are ongoing with both officials from the finance ministry and the central bank.

Sri Lanka’s foreign ministry and central bank did not immediately respond to a request for comment. China’s embassy in Sri Lanka did not immediately respond.

The South Asian nation has requested an IMF rescue plan to overcome its worst economic crisis since independence in 1948. The country defaulted on a bond payment debt earlier this year on its $12 billion overseas debt with private creditors, as it struggles to pay for imports of basic goods.

“There are some areas where we need to make further progress,” Srinivasan added, but declined to specify the top reforms Sri Lanka should address in other to reach an agreement.

An Extended Fund Facility (EFF) programme from the IMF, which would be the fund’s 17th plan for the nation, requires countries to make structural economic reforms.

Maldives and Laos are other examples of countries in the region that are facing onerous debt situations.

Srinivasan said the fund is advising countries to “spend more in alleviating the impact on the poor and vulnerable but keeping budget neutral by reducing expenditures elsewhere or raising revenues where feasible.”

“It’s not just public debt, but also corporate debt and household debt – and that has implications for policymaking,” he said. “The debt issue is very significant.”

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Reporting by Jorgelina do Rosario, Karin Strohecker, Rodrigo Campos and Uditha Jayasinghe; Editing by Frank Jack Daniel

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China to address ‘unbalanced and inadequate’ development in next five years – Xi

China’s President Xi Jinping leaves the podium following his speech after a ceremony to inaugurate the city’s new leader and government in Hong Kong, China, July 1, 2022, on the 25th anniversary of the city’s handover from Britain to China. Selim Chtayti/Pool via REUTERS

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BEIJING, July 27 (Reuters) – China must focus on addressing “unbalanced and inadequate development” in the next five years, President Xi Jinping told senior leaders this week, indicating he wants to continue the economic priorities adopted in the past five years.

State broadcaster CCTV on Wednesday said Xi made the comments in a special two-day meeting in Beijing on Tuesday, in which he laid out his vision for “the next five years and more”, after the ruling Communist Party holds a Congress later this year.

The party is due to reshuffle its leadership for the next five years at the Congress. While his previous two predecessors stepped down after two full terms, Xi is expected to secure an unprecedented third term as China’s top leader at the Congress.

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Xi had first mentioned the need to address problems of “unbalanced and inadequate development” as a policy priority when he presented a major political document at the last Congress in 2017.

The problems include low quality growth, weak innovation, a wide gap in development and social services available between cities and villages and an over-reliance on fossil fuels, he said in the Congress report in 2017.

Xi told regional chiefs and ministers gathered for this week’s meeting that the party must keep up its “fighting spirit” and strengthen its “ability to fight”, according to CCTV.

In his review of the past five years, Xi listed the modernisation of Chinese military and peace in the Taiwan Strait as some of his achievements.

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Reporting by Yew Lun Tian
Editing by David Holmes and Mark Potter

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China Fines Didi $1.2 Billion as Tech Sector Pressures Persist

For Didi, once hailed as an innovator and disrupter in China’s staid transportation sector, it has been a fast fall from grace. The company was considered the pride of China’s spunky, and valuable, start-up scene in 2016 when it beat its American rival, Uber, and bought the firm’s Chinese operations. At the time, its executives vowed that the data it collected would be used to unsnarl traffic jams and eventually help develop driverless cars.

As Beijing has asserted greater control over internet firms like Didi, it has sought to shape a private sector more in line with the Communist Party’s focus on political security and meeting its policy goals. Popular attitudes about China’s tech sector, once an emblem of future achievement, appear to have shifted, too.

After the punishment was announced, a number of professors and tech commentators took to Weibo to call for even harsher punishments.

Jin Canrong, a professor of international relations at Renmin University, called the revelations of Didi’s violations “really shocking!” Didi “disregarded national security, disregarded national laws and disregarded citizens’ privacy,” he added. Others went further, wondering whether a company that jeopardized national security should be allowed to exist at all.

In the short term, the government will probably relent on Didi, allowing it to restore its apps in stores. But the company will still have to show that it has addressed the regulator’s concerns over data security and other issues, said Linghao Bao, an analyst at Trivium China, a China-focused policy research team.

“Big tech platforms are getting a break as the economy is not doing so well. Regulators are shifting from a campaign-style crackdown toward a more rules-based governance,” he said. “But tech regulation is here to stay over the long term.”

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G20 finance chiefs make few policy breakthroughs at Indonesia meeting

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NUSA DUA, Indonesia, July 16 (Reuters) – The Group of 20 major economies’ finance chiefs on Saturday pledged to address global food insecurity and rising debt, but made few policy breakthroughs amid divisions over Russia’s war in Ukraine at a two-day meeting in Indonesia.

With questions growing about the effectiveness of the G20 in tackling the world’s major problems, U.S. Treasury Secretary Janet Yellen said the differences had prevented the finance ministers and central bankers from issuing a formal communique but that the group had “strong consensus” on the need to address a worsening food security crisis.

Host Indonesia will issue a chair’s statement instead. Finance Minister Sri Mulyani Indrawati said most topics were agreed by all members except for particular statements about the war in Ukraine. She described it as the “best result” the group could have achieved at this meeting.

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Western countries have enforced strict sanctions against Russia, which says it is conducting a “special military operation” in Ukraine. Other G20 nations, including China, India and South Africa, have been more muted in their response.

“This is a challenging time because Russia is part of the G20 and doesn’t agree with the rest of us on how to characterize the war,” Yellen said, but stressed the disagreement should not prevent progress on pressing global issues.

Russia’s finance minister attended the meeting virtually while his deputy attended in person. Ukraine’s finance minister addressed the session virtually where he called for “more severe targeted sanctions”.

Indonesia’s Sri Mulyani said while chairing a fractured G20 has been “quite overwhelming” due to the war in Ukraine, all members agreed that food insecurity requires special attention and she called for removal of trade protections that prevented flow of food supplies.

The G20 will set up a joint forum between finance and agriculture ministers to address food and fertilize supply issue. A similar forum has been set up for finance and health ministers for pandemic preparedness.

Analysts said the failure to agree on a communique reflected the weakness of the once-mighty economic grouping.

“We are in a rudderless moment in the world economy with the G20 paralysed by Putin’s war and the G7 unable to lead on global public goods,” said Kevin Gallagher, who heads the Global Development Policy Center at Boston University.

G20 members pulled together at the start of the pandemic, but initiatives to cushion the shock for heavily indebted poor countries failed to produce significant results.

Western countries, concerned about the lack of transparency in China’s lending, were pressuring Beijing to restructure debt contracts and transform its role to “one that (contributes) to the country rather than to one of indebtedness and servitude,” said U.S. Ambassador to Japan Rahm Emanuel. But they were frustrated that Chinese officials did not attend the meetings in person, making sideline discussions impossible.

Kristalina Georgieva, head of the International Monetary Fund, warned more than 30% of emerging and developing countries – and a staggering 60% of low-income countries – were in or near debt distress. read more

“The debt situation is deteriorating fast and a well-functioning mechanism for debt resolution should be in place,” she said.

Sri Mulyani said G20 also encouraged further progress on the implementation of the Common Framework for Debt Treatment beyond the debt service suspension initiative in a timely, orderly, and coordinated manner.

She said there were discussions on how to make the framework more effective for countries in need.

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Additional reporting by Stefanno Sulaiman in Nusa Dua and Leigh Thomas in Paris; Editing by William Mallard, Kanupriya Kapoor, Tom Hogue and William Mallard

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Economy Is at Risk of Recession by a Force Hiding in Plain Sight

This past week brought home the magnitude of the overlapping crises assailing the global economy, intensifying fears of recession, job losses, hunger and a plunge on stock markets.

At the root of this torment is a force so elemental that it has almost ceased to warrant mention — the pandemic. That force is far from spent, confronting policymakers with grave uncertainty. Their policy tools are better suited for more typical downturns, not a rare combination of diminishing economic growth and soaring prices.

Major economies including the United States and France reported their latest data on inflation, revealing that prices on a vast range of goods rose faster in June than anytime in four decades.

China reported that its economy, the world’s second-largest, expanded by a mere 0.4 percent from April through June compared with the same period last year. That performance — astonishingly anemic by the standards of recent decades — endangered prospects for scores of countries that trade heavily with China, including the United States. It reinforced the realization that the global economy has lost a vital engine.

The specter of slowing economic growth combined with rising prices has even revived a dreaded word that was a regular part of the vernacular in the 1970s, the last time the world suffered similar problems: stagflation.

Most of the challenges tearing at the global economy were set in motion by the world’s reaction to the spread of Covid-19 and its attendant economic shock, even as they have been worsened by the latest upheaval — Russia’s disastrous attack on Ukraine, which has diminished the supply of food, fertilizer and energy.

“The pandemic itself disrupted not only the production and transportation of goods, which was the original front of inflation, but also how and where we work, how and where we educate our children, global migration patterns,” said Julia Coronado, an economist at the University of Texas at Austin, speaking this past week during a discussion convened by the Brookings Institution in Washington. “Pretty much everything in our lives has been disrupted by the pandemic, and then we layer on to that a war in Ukraine.”

Great Supply Chain Disruption.

meat production to shipping exploited their market dominance to rack up record profits.

The pandemic prompted governments from the United States to Europe to unleash trillions of dollars in emergency spending to limit joblessness and bankruptcy. Many economists now argue that they did too much, stimulating spending power to the point of stoking inflation, while the Federal Reserve waited too long to raise interest rates.

Now playing catch-up, central banks like the Fed have moved assertively, lifting rates at a rapid clip to try to snuff out inflation, even while fueling worries that they could set off a recession.

Given the mishmash of conflicting indicators found in the American economy, the severity of any slowdown is difficult to predict. The unemployment rate — 3.6 percent in June — is at its lowest point in almost half a century.

American consumers have enhanced fears of a downturn. This past week, the International Monetary Fund cited weaker consumer spending in slashing expectations for economic growth this year in the United States, from 2.9 percent to 2.3 percent. Avoiding recession will be “increasingly challenging,” the fund warned.

Orwellian lockdowns that have constrained business and life in general. The government expresses resolve in maintaining lockdowns, now affecting 247 million people in 31 cities that collectively produce $4.3 trillion in annual economic activity, according to a recent estimate from Nomura, the Japanese securities firm.

But the endurance of Beijing’s stance — its willingness to continue riding out the economic damage and public anger — constitutes one of the more consequential variables in a world brimming with uncertainty.

sanctions have restricted sales of Russia’s enormous stocks of oil and natural gas in an effort to pressure the country’s strongman leader, Vladimir V. Putin, to relent. The resulting hit to the global supply has sent energy prices soaring.

The price of a barrel of Brent crude oil rose by nearly a third in the first three months after the invasion, though recent weeks have seen a reversal on the assumption that weaker economic growth will translate into less demand.

major pipeline carrying gas from Russia to Germany cut the supply sharply last month, that heightened fears that Berlin could soon ration energy consumption. That would have a chilling effect on German industry just as it contends with supply chain problems and the loss of exports to China.

euro, which has surrendered more than 10 percent of its value against the dollar this year. That has increased the cost of Europe’s imports, another driver of inflation.

ports from the United States to Europe to China.

“Everyone following the economic situation right now, including central banks, we do not have a clear answer on how to deal with this situation,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Norway. “You have a lot of things going on at the same time.”

The most profound danger is bearing down on poor and middle-income countries, especially those grappling with large debt burdens, like Pakistan, Ghana and El Salvador.

As central banks have tightened credit in wealthy nations, they have spurred investors to abandon developing countries, where risks are greater, instead taking refuge in rock-solid assets like U.S. and German government bonds, now paying slightly higher rates of interest.

This exodus of cash has increased borrowing costs for countries from sub-Saharan Africa to South Asia. Their governments face pressure to cut spending as they send debt payments to creditors in New York, London and Beijing — even as poverty increases.

U.N. World Food Program declared this month.

Among the biggest variables that will determine what comes next is the one that started all the trouble — the pandemic.

The return of colder weather in northern countries could bring another wave of contagion, especially given the lopsided distribution of Covid vaccines, which has left much of humanity vulnerable, risking the emergence of new variants.

So long as Covid-19 remains a threat, it will discourage some people from working in offices and dining in nearby restaurants. It will dissuade some from getting on airplanes, sleeping in hotel rooms, or sitting in theaters.

Since the world was first seized by the public health catastrophe more than two years ago, it has been a truism that the ultimate threat to the economy is the pandemic itself. Even as policymakers now focus on inflation, malnutrition, recession and a war with no end in sight, that observation retains currency.

“We are still struggling with the pandemic,” said Ms. Haugland, the DNB Markets economist. “We cannot afford to just look away from that being a risk factor.”

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Germany Hopes to Outrace a Russian Gas Cutoff and Bone Cold Winter

Russian natural gas has fired the furnaces that create molten stainless steel at Clemens Schmees’s family foundry since 1961, when his father set up shop in a garage in the western part of Germany.

It never crossed Clemens’s mind that this energy flow could one day become unaffordable or cease altogether. Now Mr. Schmees, like thousands of other chieftains at companies across Germany, is scrambling to prepare for the possibility that his operations could face stringent rationing this winter if Russia turns off the gas.

“We’ve had many crises,” he said, sitting in the company’s branch office in the eastern city of Pirna, overlooking the Elbe River valley. “But we have never before had such instability and uncertainty, all at once.”

Nord Stream 1, the direct gas pipeline between Russia and Europe, was shut down for 10 days of scheduled maintenance.

“gas crisis” and triggered an emergency energy plan. Already landlords, schools and municipalities have begun to lower thermostats, ration hot water, close swimming pools, turn off air-conditioners, dim streetlights and exhort the benefits of cold showers. Analysts predict that a recession in Germany is “imminent.” Government officials are racing to bail out the largest importer of Russian gas, a company called Uniper. And political leaders warn that Germany’s “social peace” could unravel.

The crisis has not only set off a frantic clamber to manage a potentially painful crunch this winter. It has also prompted a reassessment of the economic model that turned Germany into a global powerhouse and produced enormous wealth for decades.

Jacob Kirkegaard, a senior fellow at the German Marshall Fund in Brussels.

More than any other economy in the region, Germany’s is built on industrial giants — mighty chemical, auto, glass and steel producers — that consume enormous amounts of fuel, two-thirds of it imported. The chemical and pharmaceutical industries alone use 27 percent of the country’s gas supply.

Most of it came from Russia. Before Mr. Putin invaded Ukraine five months ago and set off retaliatory sanctions from Europe, the United States and their allies, Russia delivered 40 percent of Germany’s imported oil and more than 55 percent of its imported gas.

Gazprom, Russia’s gas monopoly, cut deliveries in June, and if they are reduced further, German industries may soon confront fuel shortages that will compel them to scale back production, Mr. Kirkegaard said. “I don’t think there are that many other European countries that have to do that,” he said.

Over the next five to eight years, until more of an ongoing transition to renewable energy is completed, the country will be “under acute pressure,” he added. “That is the time period when Germany’s economy is still basically going to be fueled by fossil fuels.”

China, Germany’s biggest trading partner, is expected to see substantially slower growth than in the previous decade, reporting on Friday that the economy expanded just 0.4 percent in the second quarter. That slowdown is likely to ripple through other emerging nations in Asia, dragging down their growth as well.

security risks of globalized trade?

Some economists have argued that the German business models were partly based on an erroneous assumption and that cheap Russian gas wasn’t as cheap as it looked.

The economist Joseph Stiglitz, a Nobel laureate, said the market failed to accurately price in the risk — however unlikely it may have seemed at the time — that Russia could decide to reduce or withhold gas to apply political pressure.

It would be like figuring the costs of building a ship without including the cost of lifeboats.

“They didn’t take into account what could happen,” Mr. Stiglitz said.

Inflation last month was 7.6 percent. Investor confidence in Germany has dropped to its lowest point in a decade.

in February.)

Households, hospitals and essential services will be considered priorities if gas rationing becomes unavoidable, but industrial representatives have been pleading their cases in Berlin.

as much as 12 percent once ripple effects on industries beyond energy and consumers were taken into account.

Looking ahead to the winter, Mr. Krebs said much depended on the temperature and Russian gas delivery levels.

“The best case is stagnation with high inflation,” he said. But over the longer term, he argued, Germany could come out more competitive if it manages the energy transition well and provides speedy and significant public investment to create the requisite infrastructure.

Marcel Fratzscher, president of the German Institute for Economic Research, agreed. Germany’s industrial success is based on added value more than cheap energy, he said. Most German exports, he said, are “highly specialized products — that gives them an advantage and makes them competitive.”

Labor policy, too, will have an impact.

Wage negotiations for the industrial sector are scheduled to begin in September. The powerful I.G. Metall union will seek an 8 percent wage increase for its 3.9 million members. And starting Oct. 1, a new minimum wage law will establish for the first time a single national rate — 12 euros an hour.

For now, supply chain breakdowns are still causing headaches, and businesses that were only beginning to recover from the Covid-19 pandemic are busy devising contingency plans for gas shortages.

Beiersdorf, maker of skin care products including Nivea, has had a crisis team in place since May to draw up backup plans — including readying diesel generators — to ensure production keeps running.

At Schmees, high costs have already forced the shutdown of one furnace, cutting into the foundry’s ability to meet deadlines. Customers waiting for deliveries of stainless steel include companies that run massive turbines used in icebreaker ships and artists who use it in their sculptures.

Mr. Schmees, an energetic man who prides himself on having nurtured a strong company culture, is planning to ask his employees to work a six-day week through the end of the year, to ensure that he can fill all of the firm’s orders by December. That is how long he’s betting that Germany’s natural gas supplies will hold if Russia cuts off the flow entirely.

“The tragedy,” Mr. Schmees said, “is that we have only now realized what we’ve gambled away with this cheap gas from Russia.”

Katrin Bennhold contributed reporting from Berlin.

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