Gloomy prospects for Germany caught in the inextricable trap of its reliance on Russian fossil fuels: If the country cuts its energy supply from Russia, especially gas, today, it will plunge into recession from next year, no less than say this Wednesday in unison. five German Institutes for Economic Forecasting (DIW, IFO, IfW, IWH and RWI).
This warning could give grist to the mill of those putting the brakes on the four irons, such as Chancellor Olaf Scholz, against the adoption of “strong sanctions”, including the cessation of oil and gas purchases, at the request of Ukrainian President Volodymyr Zelensky and while the European Commission prepares a 6th wave of sanctions to break Vladimir Putin’s war machine.
†We have just imposed heavy sanctions on Russia and we are preparing for a sixth wave“Said the president of the European Commission, Ursula von der Leyen, during her visit to Kiev on Friday, April 8th with the head of the diplomacy Josep Borrell.
But this should not make us forget that the risk of a recession for Germany already very present was even before Russia’s war against Ukraine began, and this, due to several difficulties in was restarting productive tool that undermines the effects of the pandemic with the disorganization of global supply chains. The institutes brands generally that the German economy “troubled waters crossing” and this at a time when could give the lifting of restrictions related to the pandemic boosted the 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 so worrying that the Bundesbank issued this warning: after a 0.7% decline in the fourth quarter of 2021, Germany “may fall sharply again due to pandemic” from January to March 2022, she wrote in her monthly bulletin published Monday, February 21.
GDP forecast lowered to 2.7% in 2022 (from 4.8% earlier)
As a reminder, technically a recession is defined by a decline in GDP for two consecutive quarters. And sure, if the “Buba” had left a little glimmer of hope then – in the conditional – that growth “accelerate again in the spring”, this evaporated with the invasion of Ukraine.
This Wednesday, in a first “central” scenario, which takes into account the consequences of the war in Ukraine with an ongoing conflict and sanctions but without taking into account a cessation of gas supplies, the five forecasting institutes have significantly lowered their growth forecasts for 2022 , now expected at 2.7%, up from an estimate of 4.8% in October. This also translates into an expected inflation rate of 6.1% this year. And by 2023, they expect GDP to rise to 3.1%.
Stopping Russian gas imports, a grim scenario
In an “alternative scenario” calculated the five predictive organizations which economic development would be if the Russian supply of natural gas and oil from mid-April – so right – would stop.
In this case it is a “brutal recession” in 2023 which Germany would take: the German economy would could rise by 2.2% and inflation may shrink to 7.3%, ie “the highest value since the founding of the Federal Republic”†
The GDP decline is expected to be 5% in the second quarter of 2023, before the economy recovers at the end of the year. This GDP loss would amount to 220 billion euros for 2022 and 2023, the equivalent of 6.5% of annual assets, specify .
A Gordian knot
Berlin, which supplied more than 55% from Russia before the war, has already reduced this share to 40%, but despite several steps it remains hypothetical to find other suppliers that will make it possible to make up for the missing quantities and within satisfactory deadlines.
† Read: Gas: Exporting countries forced to limit their aid to Europe
At the political level, the possible embargo on Russian gas has been the subject of fierce discussions among EU Member States for several weeks, with Berlin being one of the main opponents of an immediate cessation of imports, believing that economic and social peace in Germany at stake.
For the time being, Germany does not think it will be able to do without Russian gas before mid-2024 and has activated the first level of its emergency plan at the end of March to guarantee natural gas supplies in the face of the threat of a halt to Russian supplies.
† Read: Refusal to pay in rubles threatens Russian gas supply, Germany initiates emergency plan
Difficult awakening for Germany, which measures the vulnerability of its economy
Overall, the Russian war in Ukraine has really highlighted the fragility of the German economy.
Because in addition to the dependence on Russian coal, oil and gas, which was repeatedly mentioned by Berlin for opposing a ban on the import of gas from Russia into the EU, this war has revealed another dependency, also linked to the export-based model: the one with regard to China.
As an exporting country, Germany is indeed China’s most important economic partner. In 2021, there was more than 245 billion EUR exchanged between the two countries, an increase of 15.1% over the previous year, which was characterized by Covid-19.
However, an awareness is beginning 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 for ethical reasons. The war in Ukraine has raised questions about Berlin’s commercial ties with other countries accused of human rights violations, such as China.
On April 6, in an interview with the newspaper Die ZeitGerman Finance Minister Christian Lindner (also leader of the liberal FDP party), who was concerned about Germany’s “strong economic dependence” on China, called on German industrialists to “diversify” the country’s trading partners in a context of international tensions exacerbated by the war in Ukraine.
“Perhaps now is the time to prefer doing business with people who are not only business partners, but also want to be partners from a values perspective,” said Christian Lindner.
(With AFP and Reuters)
