Bundesbank: Energy embargo would plunge Germany into recession

EAccording to model calculations by the Bundesbank, an escalation of the conflict with Moscow with a complete ban on imports of Russian energy could plunge the German economy into a recession this year. “In the aggravated crisis scenario, real gross domestic product in the current year would fall by almost 2 percent compared to 2021,” said a monthly report by the central bank published on Friday.

Since it would hardly be possible in the short term to completely compensate for supply shortfalls from Russia with increased imports from other producing countries, there are likely to be bottlenecks in the gas supply in particular. More than half of the gas imports in Germany come from Russia.

The economists at the Deutsche Bundesbank write that the consequences of a delivery stop would continue to burden the German economy in the next two years and lead to a drop in growth. The inflation rate is likely to be significantly higher for a long time due to rising energy prices.

Significant uncertainties

Nevertheless, according to the model calculations made in March, Europe’s largest economy would not shrink as much this year as in the Corona crisis year 2020. The Bundesbank economists attributed this to the “comparatively dynamic recovery phase” after the crisis. In the first Corona year 2020, the gross domestic product collapsed by 4.6 percent. In the past year, however, the German economy regained its footing and grew by 2.9 percent. The Bundesbank pointed out that the model calculations are subject to considerable uncertainties and that future developments can “both overstate and understate”.

Basically, according to the central bank, the economic effects of the Ukraine war will “considerably weaken the strong recovery that was actually planned”. Among other things, disrupted supply chains, drastically increased energy prices and increased uncertainty weighed on companies and private households. The extent of the economic consequences of the war is still very uncertain and depends on its further progress.

The central bank expects economic output to roughly stagnate in the first quarter of the current year. Before the start of the Russian attack on Ukraine on February 24, the supply bottlenecks in the industry would have eased somewhat. In addition, the construction has benefited from the mild weather, the economists justified their assessment. At the end of last year, the fourth corona wave and the tightened protective measures against the spread of the pandemic halted the economic recovery. Gross domestic product shrank by 0.3 percent in the fourth quarter compared to the previous quarter.

Source link -68