The global economy is once again under strain, but this time without the international cooperation that helped resolve previous post-Cold War crises. Instead, many of the world's biggest powers are now intent on undermining one another, with unsettling economic implications.
"There is a level of weaponizing the economy that we have not seen for, perhaps, decades," said Adam Posen, president of the Peterson Institute for International Economics. "You've got G-20 economies actively trying to harm other G-20 economies. This is a different world."
Europe might already be in a recession driven by higher energy prices, economists say, a result of Russia cutting off natural-gas supplies and an imminent ban by Europe on imports of Russian oil. At the same time, the European Central Bank raised its key interest rate last Thursday to 1.50% from 0.75%, an effort to stem inflation that will likely weigh on output even more.
Growth slowed significantly yet inflation remains far too high, ECB president Christine Lagarde said, citing "Russia's unjustified war against Ukraine."
The Commerce Department reported last Thursday that U.S. inflation-adjusted gross domestic product, a common measure of economic output, grew at a 2.6% annual rate in the third quarter after contracting in the first half of the year.
However, consumer spending was sluggish, housing contracted and many economists warn the world's largest economy is weakening again. Federal Reserve interest-rate increases are crushing housing, and gasoline prices have risen after a summer respite, squeezing many household pocketbooks.
Part of the problem: Saudi Arabia thumbed its nose at U.S. pleas that it alleviate inflation by increasing oil production. Both sides are now re-examining their long-term strategic alliance.
China's economy -- the second-largest, behind the U.S. -- grew 3.9% in the third quarter from a year earlier, according to government estimates, a rebound from the second quarter but well below the official target of 5.5%.
Chinese demand has been weighed down by slumping property prices, Covid-19 restrictions and growing tensions with the U.S., which recently said it would restrict the flow of semiconductors and related equipment and expertise to China. At the same time, the U.S. and its allies are pressing Russia with a growing range of economic sanctions.
In short, the global cooperation that once flowered under what President George H.W. Bush 30 years ago called a "new world order" has morphed into outright discord.
This means lost economic productivity and profits everywhere, a drag on stock markets and weaker wage growth, Mr. Posen said.
If a more severe economic crisis emerges, he doubts major economic powers will band together to solve it, as they did during the 2007-09 global financial crisis to boost falling demand and stabilize a fragile global banking system.
Nathan Sheets, a Citigroup economist and former chief international economist for the Federal Reserve, projects "rolling recessions" in the next 12 months, first hitting Europe because of the energy squeeze and later the U.S., as interest-rate increases slow household and business demand.
This panoply of threats is showing up in some business results.
"Rising global interest rates, deterioration in U.S. economic conditions, economic weakness in China and Europe, along with China's zero-tolerance Covid policy, all negatively impacted domestic containerboard and box demand," Thomas Hassfurther, executive vice president at Packaging Corporation of America, an Illinois-based cardboard-box and paper maker, said Tuesday in a call with analysts. "We expect the majority of these conditions to continue."
The company, which has nearly 100 U.S. production facilities, shipped 6% fewer cardboard products in the third quarter compared with a year earlier.
Another source of global tension is the Fed, which isn't trying to undermine U.S. trading partners, but is nevertheless taking actions that reverberate around the world. By raising interest rates, it is slowing U.S. consumer demand. One result: Imports fell sharply in the third quarter.
Fed rate increases also have global financial consequences: International capital is flowing away from other countries and into U.S. bonds and bank deposits. This in turn drives down the currencies of other countries against the dollar, raising what they pay for food and oil and other commodities typically priced in dollars.
Some foreign central banks are raising interest rates to limit the decline in their own currencies, which hurts their economic growth.
A stronger dollar also makes it hard for some countries to pay off their international debts. Small, poor countries are especially vulnerable. Compounding their problem, China in the past decade became one of the world's largest creditors, and it doesn't agree with U.S. and European protocols for working out bad debt, policies developed during the era of the new world order.
"Failure to act on these debts could imply years of ongoing difficulties," Brent Neiman, a U.S. Treasury counselor, warned in a speech last month.
Ecuador, Suriname, Zambia, Sri Lanka and Argentina were among those caught in the crosshairs of disagreements on debt restructuring between China and the West, he said.
Many investors, business executives and policy makers began the year hoping the global economy would return to normalcy more than two years after the emergence of Covid.
In 2020 and 2021, Covid and business shutdowns related to the pandemic tangled global production and shipping, making it difficult for companies to tap supplies from abroad. Now some U.S. multinationals say their problems are related to global demand rather than supply.
U.S. appliance manufacturer Whirlpool Corp. said earlier this month it had cut global production by 35% to reduce inventories.
"In key countries across the globe, we saw double-digit demand declines," president Joseph Liotine told analysts. "This is pretty much the same level of production as [the second quarter of] 2020, when we were faced with global Covid shutdowns."
As they budget for the coming calendar year, some executives say they don't want to invest or hire aggressively in a turbulent global environment, which weighs on the 2023 outlook.
"This is a very interesting time to be building a financial plan because there is so much uncertainty. There's economic uncertainty, there is geopolitical uncertainty," Carol Tomé, chief executive at shipping company United Parcel Service Inc., told investors last week. "I am thus planning conservatively.''
The rise in third quarter U.S. GDP assuages some recession concerns. A large increase in exports -- led by shipments of natural gas and oil to Europe -- helped fuel the gain.
However, the pickup could prove to be short-lived. In an early reading of how the fourth quarter started, S&P Global said this week its index of U.S. service and manufacturing sector output fell to 47.3 in October from 49.5 in September. An index below 50 signals contracting economic activity.
Authorities in China responded to past slowdowns by pumping stimulus into its economy, including lower interest rates, directives to banks to lend and loosened restrictions on property building.
That helped China and the world economy during the 2007-2009 global financial crisis, but it also led to an overbuilt property sector and bad bank loans.
Today Beijing has less room to maneuver.
President Xi Jinping, who recently emerged from a party congress with another term in power and a tighter grip on the Communist Party, has shown little inclination to back away from his zero-Covid policy of lockdowns. That makes businesses and households wary of borrowing, spending and investing.
China's central bank has resisted the global tide of rising interest rates, but it is also constrained from lowering them much, as it tries to stanch an outflow of capital that has driven its currency, the yuan, down more than 11% against the dollar in offshore trading so far this year.
Some economic officials in Beijing have complained that they think the Fed is purposely pushing up U.S. rates to hurt China through the currency, according to people familiar with these conversations.
In the eurozone, S&P Global estimates services and manufacturing output contracted for four straight months through October, with Germany experiencing an especially sharp fall. Now the region faces the risk of natural-gas shortages and fuel rationing this winter.
Mr. Sheets, from Citigroup, figures that two things could go right to improve the outlook. One is good weather in Europe, which would diminish demand for scarce energy.
"This is humbling," he said. "After decades working as a global economist, here I am saying it depends on the weather."
The other, Mr. Sheets said, is some moderation in U.S. inflation. That would give the Fed leeway to stop raising interest rates and take pressure off U.S. trading partners.
Strained supply chains show signs of improving, he said, which could ease pressure on the prices of globally traded goods.
However, economists have repeatedly predicted that broader inflation pressures would dissipate in the past 12 months. So far they haven't.
Jason Douglas and Lingling Wei contributed to this article.
