Friday, March 31

Russia invasion of Ukraine is increasing risk of a recession in Germany, think tank says

Berlin’s Brandenburg Gate on the occasion of the Earth Hour, on March 26, 2022.

Tobias Schwarz | Afp | Getty Images

Germany’s heavy reliance on Russian energy could tip its economy into recession, an independent economic think tank warned on Wednesday.

There are rapidly rising concerns about what Russia’s unprovoked invasion of Ukraine will mean for European economies. The war has contributed to higher energy prices, it’s pushing up food prices too and there are additional expenses to deal with a massive influx of Ukrainians fleeing the war.

There is also the ongoing threat that Moscow might choose to cut its supplies of natural gas into the bloc — which could mean the collapse for many businesses.

“The high dependence on Russian energy supplies entails a considerable risk of lower economic output and even a recession with significantly higher inflation rates,” the German Council of Economic Experts, which advises the government in Berlin, said in a report Wednesday.

Germany’s Chancellor Olaf Scholz expressed a similar concern last week when addressing the country’s Parliament, saying that imposing an immediate ban on Russia energy imports “would mean plunging our country and the whole of Europe into a recession.”

His comments highlighted the dependence of Germany, and other EU nations, on Russia for energy supplies.

In 2020, for example, Germany imported almost 59% of its natural gas from Russia, according to data from Europe’s statistics office. Other EU nations registered even higher dependencies with the Czech Republic importing 86% of Russian gas, and Latvia and Hungary importing more than 100% — meaning they were buying more than their domestic needs.

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Germany should immediately do everything possible to take precautions against a suspension of Russian energy supplies.

German Council of Economic Experts

Earlier on Wednesday, Germany’s Economy Minister Robert Habeck triggered a first warning, out of three possible levels, on gas stockpiles. He urged businesses and households to reduce their energy consumption, saying “every kilowatt hour counts,” according to Reuters.

Energy dependency has become even more concerning for Europe after Russia’s President Vladimir Putin said last week that “unfriendly” nations would have to pay for natural gas in rubles. This plan would prop up the Russian currency, which has plummeted in the wake of the invasion of Ukraine. Putin has previously set a March 31 deadline for the ruble payments.

However, western nations, including Germany, have said this would be a breach of contract and urged businesses to keep paying in euros or US dollars. The division increases the chances of a disruption in energy flows.

“Germany should immediately do everything possible to take precautions against a suspension of Russian energy supplies and quickly end its dependence on Russian energy sources,” the German Council of Economic Experts also said on Wednesday.

The academic institution projected a gross domestic product rate of 1.8% this year and 3.6% in 2023 for Germany — provided that there is no suspension of energy deliveries.

In terms of inflation, its estimates point to a rate of 6.1% this year and 3.4% in 2023 for Europe’s largest economy.

Speaking Wednesday, European Central Bank President Christine Lagarde said that the war in Ukraine “poses significant risks to growth” and added that European households “are becoming more pessimistic and could cut back on spending.”

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