Germany To Face Sharp Recession, After Russia’s Sudden Action

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  • Germany would face a sharp recession if gas supplies from Russia are suddenly cut off.
  • The government said the war in Ukraine poses “substantial risks” for Europe’s largest economy.

A recent news article published in the OEdigital reveals that sudden Cutoff of Russian Gas Would Cause Sharp Recession in Germany.

Sudden stop in Russian energy supplies

A sudden stop in Russian energy supplies – an adverse scenario and not the institutes’ baseline expectation – would slow economic growth to 1.9% this year and result in a contraction of 2.2% in 2023, they said.

The chairmen of three German parliamentarian committees called on Tuesday for the European Union to impose an embargo on Russian oil as soon as possible.

But a survey published on Wednesday showed most Germans balk at that idea.

German economy

“If gas supplies were to be cut off, the German economy would undergo a sharp recession,” said Stefan Kooths, vice president and research director of business cycles and growth at the Kiel Institute for the World Economy.

The cumulative loss of gross domestic product (GDP) in 2022 and 2023 in the event of such a supply freeze would likely be around 220 billion euros ($238 billion), or more than 6.5% of annual economic output, the five institutes said.

In its monthly report, Germany’s Economy Ministry said the war in Ukraine “poses substantial risks” for the economy, but it was hard to quantify effects: “They depend heavily on the duration and intensity of the war,” it said.

The RWI in Essen, the DIW in Berlin

The economic institutes – the RWI in Essen, the DIW in Berlin, the Ifo in Munich, the IfW in Kiel and Halle’s IWH – confirmed revised forecasts reported by Reuters on Tuesday, cutting their baseline 2022 growth projection for the economy to 2.7% from 4.8% and forecasting 2023 growth of 3.1%. Read full story

The Economy Ministry said that in the coming months the inflation rate driven by energy prices and the uncertainty caused by the Russian intervention in Ukraine are likely to weigh on private consumption.

Trade flows and supply chains have been affected by the war, it said, adding: “Uncertainty about future economic developments remains correspondingly high.”

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Source: OEdigital

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