“That would be the super meltdown”
Top economist warns of gas supply stop
02/14/2022, 5:25 p.m
According to Marcel Fratzscher, the economic consequences of an attack by Russia on Ukraine would be drastic. Germany is threatened with higher inflation, and a stop in the supply of gas from Russia is also possible, says the DIW boss. But the Russian economy would be hit even harder.
Tens of thousands of Russian soldiers on the border with Ukraine, the West fears an invasion. In this case, the USA, the EU and Great Britain are threatening tough sanctions against Russia. Such a conflict would also affect the German economy, warns the President of the German Institute for Economic Research (DIW), Marcel Fratzscher.
Oil and gas prices would “shoot through the roof,” the economist told ntv. The German economy is dependent on energy imports from Russia. Bilateral trade will also suffer. In addition, interest rates would rise – and that would slow down the German economy significantly. She is currently in a difficult situation anyway, as she is still recovering from the consequences of the pandemic.
Fratzscher warned of delivery bottlenecks. “If Russia stops supplying gas, there is a high probability that companies will have to close for a while,” said the DIW boss. Because heating homes has priority over industrial production. That could drive Germany back into recession and, from an economic point of view, would be “really a super meltdown”.
The Kremlin “plays with fire”
Fratzscher also sees the risk of inflation. If the conflict intensifies, gas prices could rise even further and increase inflation significantly. Food prices could also get another boost, the economist said. On the one hand, Germany imports a lot of grain from the Ukraine. On the other hand, higher energy prices made both fertilizers and the transport of food more expensive.
But Russia will pay an even higher price economically, said Fratzscher. Russia is a poorer economy than Germany and the European Union, for example. It is dependent on imports of many industrial products, such as machines. However, the biggest threat to Russia is the decoupling from the international payment system Swift. Then no company would be able to get loans from abroad. However, the question is not only which side loses the most in the conflict, said Fratzscher, but “who can also absorb the damage best. And Russia seems willing to play with fire.”