An immediate EU ban on Russian gas imports will cost Germany 180 billion euros in lost production this year, the country’s powerful central bank has warned.
The Bundesbank said in its latest monthly bulletin, published on Friday, that the embargo on Russian gas would reduce gross domestic product by 5 percent in 2022, sparking soaring energy prices and one of the deepest recessions in decades.
The central bank’s assessment is far gloomier than that of academic economists, and is likely to revive a fierce debate over how prepared the eurozone’s economic power is to cope without Russian gas.
The Ukrainian government, European politicians and scientists say sales of gas, oil and coal to the West have stabilized Russia’s economy and helped fund President Vladimir Putin’s military machine. The EU will ban Russian coal imports from August, but gas supplies will continue.
Last month, a group of nine university economists called the effects of the full energy embargo “manageable”, saying it would reduce Germany’s GDP by just 0.3 to 3 percent.
However, industry leaders have warned that the impact will be more serious. BASF CEO Martin Brudermüller said a sudden shutdown in Russian gas supplies could destroy “Germany’s entire economy” and cause the worst economic crisis since 1945.
Politicians also dismissed claims that the economic blow would be insignificant, with German Chancellor Olaf Scholz calling the assessments “wrong” and “irresponsible”. Economy Minister Robert Habeck said Germany would give up Russian gas by 2024.
At a meeting of the IMF and the World Bank in Washington on Thursday, US Treasury Secretary Janet Yellen called on the EU to be “careful” with a ban on Russian energy imports, warning of the damage such a move could do to the global economy.
Chancellor Olaf Scholz is among those who have rejected claims that the economic blow will be insignificant © Clemens Bilan / EPA / Shutterstock
Before the war in Ukraine, Russia accounted for 55% of all German gas imports, according to the German government. More than a third of this gas is consumed by the manufacturing sector. In the chemical industry, gas is needed not only to generate electricity and heat, but also to produce chemicals derived from hydrocarbons.
Under German law, industrial consumers will be cut off from gas supplies first if supply does not meet demand, and households that use it for heating and hot water production receive preferential treatment. Last month, the German government took the first official steps towards gas regulation.
In its simulation, the Bundesbank suggested that industrial consumers could not replace Russian gas with alternative energy sources for three quarters in a row. Under such a scenario, inflation – which is already 7.3 percent, which is already at its highest level since the merger – will rise by another 1.5 percentage points this year, exacerbating the threat of stagflation, where strong price pressures are combined. with weak growth.
The 5% blow to growth will push the German economy into one of the biggest recessions since the financial crisis, as total GDP will shrink by 2%. The latest forecasts of the European Central Bank, made in March, predict a growth of 3 percent. Germany’s economy contracted by 5.7% in 2009 and by 4.6% in 2020.
The Bundesbank has warned that its estimates are subject to a very high degree of uncertainty, as it is unclear whether standard macromodels are able to capture all the impacts that could be caused by such an unprecedented disruption of energy supplies.
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