How the German economy would be hit by Russian gas stop

Halting Russian gas supplies to Germany would cost Europe's largest economy 1.5 percent of its GDP in 2022, the International Monetary Fund said Wednesday, as concerns mount that Moscow will further squeeze supply.

A gas flame on a stove.
A gas flame on a stove. Germany is struggling with a huge energy crisis. Photo: picture alliance/dpa | Marijan Murat

This year’s loss would be followed by a negative impact of 2.7 percent in 2023 and a 0.4-percent reduction in 2024, according to an IMF forecast where gas deliveries were assumed to have stopped on June 1.

A potential shutoff “could cause sizeable reductions in German economic activity and increases in inflation”, the IMF said in a statement.

Supplies to Germany from Russia are currently at zero as the Nord Stream pipeline undergoes maintenance, after Moscow initially slashed deliveries by 60 percent in mid-June citing a delayed gas turbine repair.

Berlin has rejected Gazprom’s turbine explanation and believes Russia is squeezing supplies in retaliation for Western sanctions on Moscow over its invasion of Ukraine.

Works on the pipeline are due to finish Thursday, with officials watching closely to see if and at what levels supplies resume.

The risks for the economy from a complete shutdown, as well as a weak global economy and widespread supply bottlenecks “loom large”, the IMF said.

READ ALSO: Putin ‘threatens Germany with further gas reductions’

The same headwinds meant that German “growth is likely to be muted in the coming quarters”, it said.

In its standard forecast, the IMF sees the German economy growing by 1.2 percent in 2022 and just 0.8 percent in 2023.

Meanwhile, the rising price of energy associated with the gas supply reductions already seen also meant that inflation is “likely to remain elevated in the next two years”, the IMF said.

The IMF forecast inflation in Germany to sit at 7.7 percent in 2022 and 4.8 percent in 2023.

A complete Russian gas shut-off could potentially increase those figures by up to two percentage points in 2022 and 3.5 percentage points in 2023 in an “extreme” scenario where Europe struggles to source alternative supplies, it said.

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United Arab Emirates to supply Germany with gas, diesel

The United Arab Emirates agreed Sunday an "energy security" agreement with Germany to supply liquefied natural gas and diesel as Berlin searches for new power sources to replace Russian supplies.

United Arab Emirates to supply Germany with gas, diesel

Emirati industry minister Sultan Ahmed Al Jaber called it a “landmark new agreement” that “reinforces the rapidly growing energy partnership between the UAE and Germany” as he signed the deal, which was witnessed by Chancellor Olaf Scholz, the UAE’s state news agency WAM reported.

Scholz is on a visit to the UAE, where he met with Emirati President Sheikh Mohamed bin Zayed Al-Nahyan.

Scholz said he “welcomed” the “energy security” agreement, WAM added.

As part of the deal, the UAE will provide “an LNG cargo for delivery in late 2022, to be used in the commissioning of Germany’s floating LNG import terminal at Brunsbuettel”, a North Sea port, the statement added.

UAE state oil company ADNOC completed its first ever direct diesel delivery to Germany earlier this month, and will “supply up to 250,000 tons of diesel per month in 2023”, it said.

The German leader is touring the Gulf in the hope of sealing new energy deals to replace Russian supplies and mitigate the energy crisis resulting from Moscow’s invasion of Ukraine.

On Saturday, Scholz met in Jeddah with Saudi Crown Prince Mohammed bin Salman, and later Sunday he was due to fly to gas-rich Qatar to hold talks with Emir Sheikh Tamim bin Hamad Al-Thani.

Energy transition

Scholz’s stop in the UAE included a tour of an environmental project at a mangrove park with Emirati climate change minister Mariam Almheiri.

Almheiri said discussions on Sunday would, in addition to energy security, cover “climate action and economic growth”.

“The UAE believes all three pillars must go hand and hand. We cannot look at one or two of these pillars separately,” she said.

She also reiterated Abu Dhabi’s insistence on “a just transition” away from fossil fuels.

Both the UAE and Saudi Arabia have been leading critics of what they describe as “unrealistic” transition models they say have contributed to the current energy crunch.

Scholz told reporters in Abu Dhabi that his country had “made progress on a whole series of projects here in terms of the production and purchase of diesel and gas”, while adding it was determined to avoid energy dependence on Russia in the future.

“The fact that we are dependent on one supplier and also dependent on its decisions will certainly not happen to us again,” he said.

“With the investments that we are now making in Germany, and that will become reality bit by bit next year, we will indeed have an infrastructure for gas imports for Germany, such that we are no longer directly dependent on the specific supplier at the other end of the pipeline, as we are with a pipeline connection.”

His visit to Qatar comes one day after France’s TotalEnergies signed a new $1.5 billion deal to help expand Doha’s natural gas production. Scholz said such projects were “important”.

“We have to ensure that the production of liquefied gas in the world is advanced to such an extent that the high demand that exists can be met — without having to fall back on the production capacities in Russia that have been used so far,” he said.