Germany might lose €220 billion in GDP in two years and have the highest inflation in its modern history, top economic institutes warn
Germany would lose hundreds of billions of euros in gross domestic product (GDP) and face the highest inflation rates in its modern history over the next two years should it stop Russia’s energy supplies immediately. The warning comes from five of the nation’s top economic research centers in a joint forecast published on Wednesday.
Europe’s top economy is still recovering from the economic impact of the Covid-19 pandemic and Russia’s military action in Ukraine – as well as Berlin’s reaction to it – might further greatly slow down the process, the report warns.
Germany’s GDP is expected to increase by 2.7% in 2022, down from 4.8% that was forecast in 2021. And that’s only if “no further economic escalations”The report states that this will happen. If there is “an immediate halt to Russian gas supplies”The five institutions warned that the GDP growth projections would continue to fall, with only 1.9% projected in 2022, before falling by 2.2% 2023. This would be a severe recession.
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“In the event of a [Russian energy supplies] delivery stop, the cumulative GDP loss would be around 220 billion euros in 2022 and 2023 alone, which equals to more than 6.5 percent of annual economic output,” says a press release issued by one of the five institutions – the Institute for Economic Research (IFO), Munich.
Germany might be able to prevent a Russian energy cut if it can manage, according to economic research centers. This would also help avoid another recession, they believe. In this scenario, Germany’s GDP would increase by 3.1% between 2023 and 2023.
The most severe inflation rate since the foundation of modern Germany would likely be caused by a halting Russian energy supply. The nation is about to face an inflation rate of 6.1% – the highest one in 40 years – in 2022 even under the “base scenario”,According to the report. If Germany gets cut off from Russia’s oil and gas, inflation could further grow to up to 7.3%, the five institutions warn.
Abandoning Russian gas would also significantly increase Germany’s budget deficit in two years in comparison to a “base scenario”The report states that this would enable Berlin to lower its budget deficit. With Germany still reliant on Russian energy, Berlin’s budget deficit would amount to €52.2 billion in 2022 and fall to €27.9 billion in 2023. If Germany decides to cut Russian energy supplies completely, it’s budget deficit will likely grow to €76 billion this year and further increase to €160 billion in 2023.
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EU does not agree to Russian energy ban
“If gas supplies are stopped, the German economy is threatened with a sharp recession,” the IFO’s press release said, adding that such a development would also lead to a further increase in gas prices and calls on the government to aid private households to ease their burden.
However, the institutions cautioned against giving too much economic assistance to the government. “it will also drive-up inflation and torpedo the important steering effect of higher energy prices. This, in turn, will exacerbate the problems of low-income households and increase the overall economic cost.”
Regularly, the German Institute for Economic Research is in Berlin and the Institute for Economic Research are in Munich. The Kiel Institute for the World Economy(IfW), the Halle Institute for Economic Research and the Rhine Westphalian Institute for Economic Research both Essen present the joint economic forecast.
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Bavaria discusses the consequences of Russian Gas Ban
Germany heavily depends on Russia for its energy supplies. In late March, Europe’s largest economy triggered a gas emergency plan over a potential disruption or stoppage of energy supplies from Russia. The move came amid a standoff between Russia and western nations over Moscow’s military operation in Ukraine.
The EU, the US and some of their allies have slapped Russia with an unprecedented set of sanctions targeting its financial and banking sectors in particular, as well as limiting some Russian banks’ ability to facilitate foreign trade deals. Moscow demanded from the EU that customers purchase gas in rubles.
The EU has also been mulling a Russian energy ban, but the bloc’s foreign ministers failed to agree on the move during their latest talks on Monday. German politicians and businessmen continue to warn of the potential severe consequences for Germany if such a move is made. Earlier this week, Bavarian Prime Minister Markus Söder warned it would mean “mass unemployment”And “social decline”.
