The main German economic forecasting institutes now agree: a reduction in Russia’s gas supply would send the German economy into recession. The country’s gross domestic product (GDP) would fall by 2.2% in 2023 and its cumulative loss of GDP over 2022 and 2023 would be €220 billion, or 6.5% of annual wealth, according to forecasts from five economic organizations (DIW, IFO, IfW, IWH and RWI).
What are the consequences for the French economy? “There will be contagion effects, especially through the export channel: a German recession would lead to lost profits for France”said Ana Boata, director of economic research at Allianz Trade (formerly Euler Hermes). A contagion effect all the more pronounced as economic ties between France and Germany have previously been strengthened by the Covid-19 crisis. Better : † They’ve never looked so good.” welcomes Patrick Brandmaier, Director General of the Franco-German Chamber of Commerce and Industry.
This is one of the side effects of China’s strict lockdowns, rising transportation costs and supply chain congestion: every country has tried to get closer to its suppliers and customers. Result: Franco-German trade increased by 12% in 2021 to 165 billion euros. This trend continued in the first two months of 2022. In January and February, German exports to France increased by 9.2% and French exports to Germany by 13%.
Paradoxically, this excellent health of bilateral trade is weakening France in the face of a German recession scenario. † The main contagion channel would then be exports.” explains Stéphane Colliac, economist at BNP Paribas. The first sectors affected? The car, which represents 6.3% billion of exports to Germany each year, metallurgical products (2.8 billion), automotive equipment (2.6 billion) and even plastics (2.2 billion). Pharmacy or agribusiness would also be penalized. † If you add it all up, it comes to a considerable volume: almost a fifth of total French exports to Germany, continues Mr Colliac. This can lead to sectoral or regional crises in France. †
“All of Europe is being punished”
According to calculations by Allianz Trade, the ‘deficit’ for French exporters would be about 15 billion euros. This shock could lead to a loss of 0.1 point in GDP, estimates Mathieu Plane, an economist at the French Observatory of Economic Conditions. Added to this are the “domino effects” of Germany’s other partner countries, which will also be affected by the fall in German demand. “All of Europe is being punished because Germany is everyone’s biggest trading partner”recalls Philippe Waechter, director of economic research at Ostrum Asset Management. This does not necessarily mean that we will all be in recession, but it will hold back economic activity and complicate the situation for the European Central Bank as well. †
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