Study on the consequences of war
175 billion euros loss expected for German companies
01/23/2023 3:39 p.m
According to an IW study, the conflict in Ukraine is having a major impact on companies in this country. The costs of the war are therefore enormous – and a quick improvement is not in sight.
Russia’s war against Ukraine is likely to cost the German economy around 175 billion euros in the current year. This is the result of calculations by the German Economic Institute (IW). This would correspond to a loss of prosperity of around 2000 euros per person.
According to the IW, the current situation was compared with a scenario in which there is no war and therefore no high energy prices or supply bottlenecks for the calculation. This resulted in a price-adjusted loss of around 4.5 percent of gross domestic product (GDP). The IW also pointed out that this development was added to an already difficult situation.
Reference was made to warnings from the federal development bank KfW, according to which a shortage of skilled workers and moderate productivity development threatened prosperity in Germany. In addition, due to lockdowns and uncertainties due to the corona pandemic, there was already a loss of prosperity of EUR 175 billion in 2020, then EUR 125 billion in 2021 and a total of almost EUR 120 billion in 2022. This results in a minus for the period from 2020 to the end of 2023 totaling 595 billion euros.
“The situation is still very fragile,” explained IW economist Michael Grömling. “The exceptional situation will keep us busy in the coming months and will weigh on prosperity,” he continued. The Institute sees uncertainties in the energy sector, high costs not only for electricity and gas, but also for preliminary products and raw materials and the associated reluctance to invest as the central problems. In addition, the demand from private households is falling, as they are also being burdened by the price increases.
A shortage of skilled workers is a burden for every second company
In an analysis entitled “The era of secure growth is over,” the state-owned development bank KfW refers to a shortage of skilled workers and only moderate productivity growth. Since 2012, labor productivity has only increased by 0.3 percent per year. “The lack of skilled workers is already hindering the business activities of every second company,” it continues.
The KfW analysis therefore speaks of an economic “turning point”. If the decline in the domestic supply of skilled workers continues to decrease, Germany would “enter an era of persistently stagnant, possibly gradually shrinking prosperity before the end of this decade”. “Continued loss of prosperity leads us to expect increasing conflicts over distribution and increased competition for the use of scarce resources.”
KfW considers a combination of different instruments to be necessary to alleviate the shortage of skilled workers. Mention is made of a higher employment rate between the ages of 15 and 64, but also over the age of 65, as well as the immigration of foreign workers. Productivity should also be increased, for example through more efficient work processes or more automation. “None of these measures would be enough on their own. Taken together, they can do a lot,” it said.
Too few students in science
The IW also refers to the risks posed by the shortage of skilled workers. The institute expressed concern about current data on the decline in the number of first-year students in mathematical, scientific and technical subjects (MINT). There is already a shortage of around 140,000 experts in academic MINT professions, according to their own calculations.
According to the Federal Statistical Office, the number of new students in the MINT field fell by 6.5 percent in 2021 compared to the previous year. One reason given was that the number of 17 to 22 year olds in Germany was also falling.