The World Bank warns that the ban on Russian gas will plunge Germany into recession
Germany’s central bank warned Friday that a ban on Russian gas imports due to a further escalation of the war in Ukraine could plunge Germany into recession, but Europe’s largest economy is likely to contract less sharply than it did during the first year of the coronavirus pandemic.
An immediate EU ban on Russian gas would cost Germany the equivalent of 165 billion euros (£138 billion) in lost output this year, according to the country’s central bank.
In its latest monthly report, the Bundesbank said: “In the acute crisis scenario, real GDP will decline in the current year by about 2% compared to 2021.”
Deutsche Bank report said Germany’s heavy industrial economy will feel the painful consequences of gas shortages in the coming years. “In addition, the inflation rate will be much higher for a longer period of time.”
Before the start of the war in Ukraine, Russian natural gas accounted for 55% of Germany’s gas needs, about a third of which is used in industrial production, including steel and chemicals.
“Natural gas prices are likely to rise further, as it is difficult to replace Russian shipments in the short term,” the bank said.
However, in the heated German debate over the economic price the country should be willing to pay to help cut off financial support for Putin’s war economy, the Bundesbank’s report was seen by some as positive news.
“The economic recession is likely to be less severe than during the corona crisis,” wrote the conservative Frankfurter Allgemeine Zeitung newspaper. “It puts more pressure on the government to justify itself.”
German GDP fell 4.6% in the first year of the pandemic, with a severe recession ending a 10-year streak of growth. The German economy recovered in 2021, growing by 2.9%.
While the European Union has already banned Russian coal and is preparing to impose a ban on its oil, plans to boycott gas have stalled in part due to concerns from Germany, which has warned that a recession on its soil could have devastating consequences. Effects across the European Union.
Germany’s Economy Minister, Robert Habeck, predicted “mass unemployment, poverty, people who can’t heat their homes, who are running out of gasoline” if his country stops using Russian oil and gas.
Critics say the German government’s fears are based on political instincts and doomsday warnings from industrial lobbyists rather than concrete economic models.