Economist warns of collapse
Gas delivery stop would be worse than Corona
05/09/2022, 11:01 am
For the German economy, an immediate stop to gas supplies from Russia would be at least as devastating as the corona pandemic or the financial crisis. A study suggests that. If the worst comes to the worst, a crisis of much more dramatic proportions seems possible.
According to a study, an abrupt cessation of Russian gas deliveries would hit the German economy as hard as the corona and financial crises. Production in Germany would collapse by 114 to 286 billion euros in the first twelve months, according to the study by the scientist Tom Krebs from the University of Mannheim, which funded the trade union Institute for Macroeconomics and Business Cycle Research (IMK). That would correspond to a loss of three to eight percent of the gross domestic product.
In addition, consumers could spend less on other goods due to rising energy prices and increase uncertainty, which would reduce economic output by a further two to four percent. As a result of a short-term natural gas embargo, an economic slump to the level of the Corona year 2020 or the financial crisis in 2009 could be expected, writes the professor of economics. However, it “could also lead to an economic crisis the likes of which (West) Germany has not experienced since World War II,” Krebs warned.
According to the information provided, natural gas is mainly used in these six branches of German industry: chemistry, especially basic chemistry, metal production and processing as well as foundry, glass and ceramics, stone and earth, food, the paper industry and machine and vehicle construction. “For these branches of industry, natural gas is an essential input factor in the production process that is difficult to replace,” writes Krebs.
The economist estimates that the social consequences of such an acute energy crisis would in all likelihood be more serious than in 2009 or 2020. After two years of the pandemic, the German economy is already under stress due to global supply chain problems and the pressure to transform caused by climate change. This could lead to more bankruptcies or relocations of production and to a significant increase in unemployment.
The options for economic and monetary policy to take countermeasures are, on the other hand, very limited in view of the already sharp increase in spending to cushion the corona crisis and the high inflation. The price shocks for energy and food also “predominantly hit the lower and middle incomes, so that social tensions are exacerbated”.