If Germany boycotts Russian gas, recession will hit it, say 5 German forecasting institutes

Dim prospects for Germany caught in the inextricable trap of its dependence on Russian fossil fuels: if the country today cuts off its supply of energy from Russia, especially gas, it will fall into recession from next year, say on Wednesday in unison at least five forecast institutes German economics (DIW, IFO, IfW, IWH, RWI).

The warning could be a thorn to those pressing the four brakes, such as Chancellor Olaf Schulz, against adopting “strong sanctions” including halting oil and gas purchases, requested by Ukrainian President Volodymyr Zelensky as the European Commission prepares for a sixth wave of sanctions to break the war machine. Vladimir Putin.

We have just imposed heavy sanctions on Russia and are preparing for a sixth wave”, announced the President of the European Commission, Ursula von der Leyen, during her visit to Kyiv on Friday, 8 April, together with Head of Diplomacy Josep Borrell.

But this should not make us forget that the threat of recession was already present for Germany even before Russia entered the war against Ukraine, and this is due to the multiple difficulties in restarting the productive instrument undermined by the consequences of the pandemic with the disorganization of global supply chains. The institutes generally point out that the German economy is “passing through difficult waters” and this at a time when the lifting of restrictions linked to the epidemic may boost activity.

| Read: Germany, the weakest link in Europe

For the record, three days before Russia took action against its Ukrainian neighbor, the economic situation was already very worrying The Bundesbank issued this warning: After declining 0.7% in the fourth quarter of 2021, Germany “It could drop again significantly due to the pandemic” From January to March 2022, she wrote in her monthly bulletin issued on Monday, February 21st.

GDP forecast down to 2.7% in 2022 (from 4.8% previously)

As a reminder, technically, a recession is defined by a decline in GDP over two consecutive quarters. And sure enough, if Booba had left a small glimmer of hope looming – in the condition – this growth “Speed ​​up again in the spring”, This evaporated with the invasion of Ukraine.

On Wednesday, in the first “central” scenario, which takes into account the consequences of the war in Ukraine as conflict and sanctions continue but without taking into account halted gas shipments, the five forecasting institutes significantly lowered their growth forecasts for 2022, now projected at 2.7%, versus an estimate of 4.8% in October. This also translates to an expected inflation rate of 6.1% this year. And in 2023, they expect GDP to rise to 3.1%.

Stopping the import of Russian gas, a bleak scenario

In an “alternative scenario,” the five forecasting organizations calculated what the economic development would be if Russian supplies of natural gas and oil were cut off from mid-April – in other words, immediately.

In this case, it will be a “brutal stagnation” in 2023 that will hit Germany: the German economy could contract by 2.2% and inflation could rise to 7.3%, i.e. “The highest value since the establishment of the Federal Republic”.

The decline in GDP will be a notable 5% in the second quarter of 2023, before the economy recovers at the end of the year. This loss in GDP will amount to 220 billion euros for the years 2022 and 2023, which is equivalent to 6.5% of annual wealth, precisely.

Gordian knot

Berlin, which supplied more than 55% of Russia before the war, has already reduced this share to 40%, but despite multiple steps, finding other suppliers that make it possible to make up for lost quantities and within satisfactory deadlines remains a default.

| Read: Gas: Exporting countries were forced to reduce aid to Europe

At the political level, a possible ban on Russian gas has been the subject of bitter discussions for several weeks among EU member states, with Berlin being one of the main opponents of an immediate halt to imports, believing that Germany’s economic and social peace is on the brink of danger.

At the moment, Germany does not envisage being able to do without Russian gas before mid-2024, and at the end of March it activated the first level of its emergency plan to ensure the supply of natural gas in the face of the threat of a halt in Russian deliveries.

| Read: Refusal to pay in rubles threatens Russian gas supplies, Germany launches emergency plan

A difficult awakening for Germany, which measures the fragility of its economy

In general, the Russian war in Ukraine highlighted the fragility of the German economy.

In addition to the dependence on Russian coal, oil and gas, which Berlin has repeatedly mentioned to oppose any ban on gas imports from Russia to the European Union, this war revealed another dependence also linked to its export-based model: with regard to China.

In fact, as an exporting country, Germany is China’s main economic partner. In 2021, more than 245 billion euros were exchanged between the two countries, an increase of 15.1% compared to the previous year, which was marked by Covid-19.

However, awareness is starting to form among German industrialists, half of whom, according to a study published in March, would be willing to reduce their imports of products from China on ethical grounds. The war in Ukraine raised the question of Berlin’s trade relations with other countries accused of human rights abuses, such as China.

On April 6, in an interview with the newspaper die zeitGerman Finance Minister Christian Lindner (also the leader of the liberal FDP party), worried about Germany’s “strong economic dependence” on China, called on German industrialists to “diversify” the country’s trading partners, in the context of international tensions exacerbated by the war in Ukraine.

Christian Lindner commented: “Maybe now is the time to do business preferentially with those who are not only business partners, but also want to be partners from a values ​​point of view.”

(with AFP and Reuters)