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ECONOMY

Russian gas stop promises ‘sharp recession’ for Germany

An immediate end to Russian energy imports would send Germany into "sharp recession" next year, the country's leading economic institutes said in a forecast published Wednesday.

Robots working on the bodywork of various car models.
Robots working on the bodywork of various car models. Photo: picture alliance/dpa | Daniel Josling

Germany, which is highly dependent on Russian gas for its energy needs, has so far resisted calls for a European boycott in response to the war in Ukraine.

Closing the taps in “mid-April” this year would limit growth to 1.9 percent in 2022 and push Germany into a recession in 2023, causing the economy to shrink by 2.2 percent, according to the forecast.

READ ALSO: Germany will limit impact of Ukraine war on job market, says minister

The impact of a boycott would “not be overcome” over the next two years, the institutes (DIW, Ifo, IfW Kiel, IWH and RWI) said in a joint statement.

Europe’s largest economy could yet suffer a “setback” at the end of 2023 into 2024, as demand for energy rises in the European winter, before “gradually” returning to growth.

Even without a boycott of Russian gas, the war in Ukraine is “slowing down” Germany’s recovery from the economic shock of the coronavirus pandemic, the institutes said.

The group slashed its forecast for growth in 2022 to 2.7 percent, from its previous estimate of 4.8 percent made in October last year.

READ ALSO: German inflation hits post-reunification high at 7.3 percent

At the same time, it raised its 2023 growth forecast to 3.1 percent from 1.9 percent, in a scenario where energy deliveries continue.

Before Moscow began its war in Ukraine, a third of Germany’s oil imports, 45 percent of its coal purchases and 55 percent of gas imports came from Russia.

The country has set about weaning itself off Russia energy imports, accelerating investments in renewables and building liquefied natural gas (LNG) gas terminals to diversify its supplies.

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ECONOMY

Germany slashes growth forecasts amid Ukraine war

Germany on Wednesday slashed its economic growth forecast for 2022 as consumer prices continued to rise steeply amid the war in Ukraine.

Germany slashes growth forecasts amid Ukraine war

The gross domestic product of Europe’s biggest economy is now expected to expand by 2.2 percent rather than 3.6 percent projected in January, the economy ministry said.

Inflation was meanwhile expected to jump to 6.1 percent for the year, “a rate seen only at times of the oil crisis or shortly after German reunification” in 1990.

Germany is “paying a price” for its backing of Ukraine against Russia’s unprovoked aggression, said Economy Minister Robert Habeck.

“We must also be ready to pay this price,” said the minister, noting that Germany was “paying through higher energy prices, through higher inflation and a slower growth”.

“This literally means that Germany will be poorer compared to the forecasts from three or four months ago.”

Berlin had previously pinned its hopes on a firm recovery for 2022 as the impact of the coronavirus pandemic begins easing.

But Russia’s aggression in Ukraine has laid waste to those plans. Instead, it has further exacerbated supply chain woes and pushed up prices of daily necessities.

Energy prices in particular have leapt since war broke out, forcing the first German companies to take drastic action like idling their plants while consumers are faced with hefty power bills.

READ ALSO: Russian gas stop promises ‘sharp recession’ for Germany

Energy threat

Germany, which is highly dependant on energy from Russia, was also facing a real threat of its gas supplies being cut off.

Russia’s Gazprom turned off its gas taps to Poland and Bulgaria earlier Wednesday over their refusal to meet Russian President Vladimir Putin’s demand for payment in rubles.

An immediate end to Russian gas imports would send Germany into a “sharp recession” next year, the country’s leading economic institutes said in a forecast published in mid-April.

“This has to be taken seriously,” Habeck said on Wednesday, stressing that Germany would continue to make its payments in euros or dollars in line with its European partners.

Converting payments into rubles is the responsibility of Gazprom, he said, acknowledging that there was some uncertainty around how Russia “will
interpret and apply” its recent decree on gas payments.

Habeck also said Germany had managed to start weaning itself off Russian coal and oil faster than expected in response to the war.

The share of crude oil imported from Russia has fallen from 35 percent before the conflict to around 12 percent, meaning a European embargo on Russian oil would be “manageable”, he said.

“This does not mean that an embargo would not significantly increase prices and that there would not be localised supply disruptions… but it would no longer lead to a national economic disaster,” Habeck said.

Berlin has also managed to reduce its gas imports from Russia to 35 percent, compared with 55 percent before the conflict, he said.

However, he said it was “not realistic” for Germany to completely ban Russian gas before next year, given the new infrastructure needed to diversify gas imports.

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