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An immediate cut to gas supplies from Russia would send Germany into a “sharp recession,” the country’s leading economic institutes warned Wednesday.
Separately, the government said the war in Ukraine poses “substantial risks” for Europe’s largest economy.
Germany, which is highly dependent on Russian gas for its energy needs, has so far resisted calls for a European boycott in response to the conflict in Ukraine.
A sudden stop in Russian energy supplies – an adverse scenario and not the institutes’ baseline expectation – would slow economic growth to 1.9% this year and result in a contraction of 2.2% in 2023, the institutes said.
The impact of a boycott would “not be overcome” over the next two years, the economic institutes – the RWI in Essen, the DIW in Berlin, the Ifo in Munich, the IfW in Kiel and Halle’s IWH – said in a joint statement.
Europe’s largest economy could yet suffer a “setback” at the end of 2023 into 2024, as demand for energy rises in the European winter, before “gradually” returning to growth.
The chairpersons of three German parliamentarian committees called on Tuesday for the European Union to impose an embargo on Russian oil as soon as possible. But a survey published on Wednesday showed most Germans balk at that idea.
“If gas supplies were to be cut off, the German economy would undergo a sharp recession,” said Stefan Kooths, vice president and research director of business cycles and growth at the Kiel Institute for the World Economy.
The cumulative loss of gross domestic product (GDP) in 2022 and 2023 in the event of such a supply freeze would likely be around 220 billion euros ($238 billion), or more than 6.5% of annual economic output, the five institutes said.
In its monthly report, Germany’s Economy Ministry said the war in Ukraine “poses substantial risks” for the economy, but it was hard to quantify its effects: “They depend heavily on the duration and intensity of the war,” it said.
Even without a boycott of Russian gas, the war in Ukraine is “slowing down” Germany’s recovery from the economic shock of the coronavirus pandemic, the institutes said.
They cut their baseline 2022 growth projection for the economy to 2.7% from 4.8% and forecast 2023 growth of 3.1%, up from 1.9%, in a scenario where energy deliveries continue.
Last year, Germany’s GDP grew by 2.9%.
Before Moscow began its war in Ukraine, a third of Germany’s oil imports, 45% of its coal purchases and 55% of gas imports came from Russia.
The country has set about weaning itself off Russian energy imports, accelerating investments in renewables and building liquefied natural gas (LNG) gas terminals to diversify its supplies.
The Economy Ministry said that in the coming months the inflation rate driven by energy prices and the uncertainty caused by the Russian intervention in Ukraine is likely to weigh on private consumption.
Trade flows and supply chains have been affected by the war, it said, adding: “Uncertainty about future economic developments remains correspondingly high.”