If Germany is boycotting Russian gas, the recession will hit, say five German institutes forecast

Grim prospects for Germany caught in the inextricable trap of its dependence on Russian fossil fuels: if the country today cuts off its energy supply from Russia, particularly gas, it will fall into recession from next year, say this Wednesday in unison no less than five German economic forecasting institutes (DIW, Ifo, IfW, IWH and RWI).

This warning could serve as grist for the mill of those who are holding the four irons, as Foreign Minister Olaf Scholz, against adopting “strong sanctions” including the cessation of purchases of oil and gas, requested by the Ukrainian President Volodymyr Zelensky and whereas the European Commission prepares a 6th wave of sanctions to break Vladimir Putin’s war machine.

We have just imposed strong sanctions on Russia and are preparing for a sixth wave“, declared the president of the European Commission, Ursula von der Leyen, during her visit to kyiv on Friday, April 8, together with the head of diplomacy Josep Borrell.

But this should not make us forget that the risk of recession was already very present for Germany, even before Russia entered the war against Ukraine, and this, due to the multiple difficulties in restarting the productive tool undermined by the consequences of the pandemic. with the disruption of global supply chains. The institutes in general note that the German economy is “going through difficult waters” and this at a time when the lifting of restrictions linked to the pandemic could give activity a boost.

| Read: Germany, Europe’s weakest link

For the record, three days before Russia took action against its Ukrainian neighbor, the economic situation was already so worrying that the Bundesbank issued this warning: after a decrease of 0.7% in the fourth quarter of 2021, Germany “could drop again significantly due to the pandemic” January to March 2022, wrote in its monthly bulletin published on Monday, February 21.

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

As a reminder, technically, a recession is defined by a drop of GDP for two consecutive quarters. And of course, if the “Buba”, then had left a glimmer of hope of glimpsing – conditionally – that growth must “Accelerate again in the spring” this evaporated with the invasion of the Ukraine.

Wednesday in a first “central” scenario, which takes into account the consequences of the war in Ukraine with a persistence of conflict and sanctions, but without taking into account a stoppage of gas supply, the five institutes forecast dropped considerably its growth forecast for 2022 is now expected at 2.7%, compared to an estimated 4.8% in October. This also results in an expected inflation rate of 6.1% this year. And for 2023, we expect GDP to increase 3.1%.

Stop Russian gas imports, a grim scenario

In an “alternative scenario”, the five forecasting organizations calculated what the economic development would be in the event of a disruption of Russian supplies of natural gas and oil starting in mid-April, in other words, immediately.

In this case, it is a “brutal recession” in 2023 that would hit Germany: the German economy could contract by 2.2% and inflation could rise to 7.3%, that is, “the highest value since the founding of the Federal Republic”.

The drop in GDP would be considerably from 5% in the second quarter of 2023, before the economy recovers later this year. This loss of GDP would amount to 220 billion euros for 2022 and 2023, equivalent to 6.5% of annual wealth, he specified.

a gordian knot

Berlin, which supplied more than 55% of Russia before the war, has already reduced this percentage to 40%, but despite multiple steps, the search for other suppliers that make it possible to make up the missing quantities and within satisfactory deadlines remains hypothetical

| Read: Gas: exporting countries forced to limit their aid to Europe

Politically, the possible embargo 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 cessation of imports, in the belief that the economic and social peace in Germany is at stake.

At the moment, Germany does not contemplate being able to dispense with Russian gas before mid-2024 and at the end of March it activated the first level of its emergency plan to guarantee the supply of natural gas in the face of the threat of stopping Russian deliveries.

| Read: Refusal to pay in rubles threatens its Russian gas supply, Germany activates its emergency plan

Difficult to wake up for Germany, which measures the fragility of its economy

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

Because, in addition to Russia’s dependence on coal, oil and gas, repeatedly mentioned by Berlin to oppose any ban on gas imports from Russia to the European Union, this war has revealed another dependence, also linked to its export-based model: what about china.

In fact, as an exporting nation, Germany is the main economic partner of China. In 2021 more than 245,000 million euros were exchanged between the two countries, a figure 15.1% higher than the previous year, marked by the Covid-19.

However, an awareness is taking shape among German industrialists, half of whom, according to a study published in March, would be willing to reduce their imports of products from China for ethical reasons. The war in Ukraine has raised the question of Berlin’s business ties with other countries accused of violating human rights, such as China.

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

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

(With AFP and Reuters)