‘Russia is half of our business.’ Or it was, rue European businesses

The shoes, 600 pairs in all, lay untouched inside an Italian warehouse: magenta sandals, décolleté heels and gold ballerina flats, destined for Russian boutiques but stuck in a limbo of sanctions and economic upheaval from Russia’s war in Ukraine.

Sergio Amaranti, the Italian shoe company saddled with the mountain of unpaid merchandise, is among thousands of European businesses grappling with a widening blowback from the conflict.

“It’s scary,” said Moira Amaranti, who manages the company founded by her father and uncle.

She said she worried that the sudden financial loss could destabilize the 47-year-old firm, which sustains her 20 longtime workers and their families.

“Russia is half of our business,” she said. “And now we have a problem.”

Russia’s monthlong war on Ukraine is lashing Europe’s economic rebound from the Covid-19 pandemic, threatening its job-rich recovery. Manufacturers and retailers that were benefiting from renewed growth are adjusting to wild swings in business conditions that have injected fresh uncertainty into economic decision-making.

Sanctions intended to punish Moscow for its invasion are blowing back to companies in unexpected ways, undermining confidence and their ability to plan. Small firms like Sergio Amaranti face a hazy future as exports to one of its key markets grind to a halt. Large multinationals that have been pulling back from Russia are assessing the risk of asset seizures or nationalization.

The war’s reverberations on surging energy, food and commodity prices are causing even wider problems, forcing European turbine makers, glass factories and zinc plants to slow or pause production. Growing congestion in logistics and supply chains has added to inflationary pressures, prompting retailers to pass rising costs onto consumers and find alternative supplies. Annual inflation hit a 40-year high of 7.5% in Europe last month.

As the disruptions pressure European businesses and their workers, governments in France, Spain and neighbouring countries are redirecting spending priorities and pledging huge subsidies to offset the pain, on top of hundreds of billions already spent to keep them afloat during the pandemic.

The European Commission authorized companies affected by sanctions against Russia to receive up to 400,000 euros ($441,000) in state aid. European businesses and consumers are getting government rebates at the gas pump and on their energy bills.

“The longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios,” Christine Lagarde, the European Central Bank chief, warned Wednesday.

On the same day, Germany, Europe’s largest economy, slashed its forecast for growth in 2022 by more than half, to 1.8%.

Cogemacoustic, a family-run enterprise employing 50 people in Limoges, in southwest-central France, never expected war would have an effect on it. The company, which specializes in mammoth industrial fans used in tunnels and mines, secured contracts for the first time in Russia last summer to help make up for a slowdown in business from pandemic lockdowns, said Marion Oriez, the chief executive.

Russian sales quickly ramped up to 5% of the business and were expected to double this year — until Russia invaded Ukraine. Russian customers were unable to pay 90 million euros owed for delivered fans because of sanctions on Russian banks, Oriez said. An additional 20 fans, about the size of small trucks, destined for Russia are sitting on her factory floor — a sunk cost of 350,000 euros.

The company was already grappling with supply shortages and rising commodity and energy costs when the war cut off steel from Ukraine needed to make the fans, requiring Oriez to find new sources and slowing factory production.

“Our situation is still difficult,” Oriez said. “There’s a lot of uncertainty for the enterprise.”

Retailers have to seek out less desirable replacements for commodities that are suddenly in short supply, upsetting customers. A British company, Iceland, is among numerous grocery chains in Europe facing a shortage of sunflower oil from Ukraine, which together with Russia accounts for 70% of the global supply.

Iceland has had to start using palm oil again to make various food products, after cutting it out to fulfil environmental sustainability pledges, the managing director, Richard Walker, said in a message to customers on Iceland’s website.

Mercadona, Spain’s largest supermarket operator, introduced a limit of five litres of sunflower oil per consumer. At San Ginés, a century-old cafe in Madrid famous for its churros, a crispy dough fried in sunflower oil, Pablo Sánchez, the manager, said he might have to pass on a 20% price rise to consumers.

“We’ve just come out of the nightmare of the pandemic and now we’re facing this war, so these are really times when you need to show extreme resilience to survive as a business,” he said.

At Vetropack, a Swiss maker of glass storage containers with plants throughout Europe, the chief executive, Johann Reiter, is bracing for the possibility that Russia’s aggression may go beyond Ukraine.

Nearly 600 workers at the company’s plant near Kyiv were forced to suddenly stop production when Russian tanks invaded the country. Around 300 tons of molten glass were left to solidify inside the site’s furnace, rendering it useless.

The Ukrainian plant made 700 million beer bottles, jam jars and other containers last year, and without it, Vetropack’s revenue is expected to slump 10%. The company can’t make up for the lost production because its other factories are working at capacity, so managers are studying whether to change its mix of products.

Reiter is keeping a wary eye on neighbouring Moldova, where another Vetropack factory operates. The company is preparing for a worst-case scenario in which Russia extends war there, putting evacuation and shutdown plans in place, as well as backup generators and satellite phones for managers to maintain communication.

“It is probably the most difficult period of my time as CEO,” Reiter said.

INTERNATIONAL NEW YORK TIMES