Germany faces deep recession if Russian gas supplies are cut, says economist

Russian gas accounted for 55 per cent of Germany's imports in 2021. PHOTO: AFP

BERLIN (REUTERS) - A halt to Russian gas supplies to Germany would trigger a deep recession and cost half a million jobs, a senior economist said in an interview published on Tuesday (May 10), as Europe's biggest economy tries to cut Russian energy imports.

Professor Achim Truger, a member of Germany's Council of Economic Experts, said German industry could suffer serious damage in the long term if Russian President Vladimir Putin decides to cut gas exports to Germany.

"By most calculations, an end to gas supplies from Russia would trigger a deep recession. Half a million jobs could be lost," daily newspaper Rheinische Post quoted Prof Truger as saying.

Last month, Russia's Gazprom cut Poland and Bulgaria off from its gas for refusing to pay in roubles, and threatened to do the same to others, raising fears that it could take similar action against Germany.

Russian gas accounted for 55 per cent of Germany's imports last year, and Berlin has come under pressure to unwind a business relationship that critics say is helping to fund Russia's war in Ukraine.

Prof Truger also said it would take a long time for inflation in Germany to fall again.

"Excessive inflation will continue well into 2023," he said.

German inflation hit its highest level in more than four decades in April, pushed higher by a spike in the price of natural gas and mineral oil products since Russia's invasion of Ukraine.

An abrupt halt of Russian gas exports could also see economies in emerging Europe, Central Asia and North Africa slide back to pre-pandemic gross domestic product levels, the European Bank for Reconstruction and Development (EBRD) warned on Tuesday.

Many countries in the EBRD’s region of operation, which covers some 40 economies, depend on Russian gas and a sudden ceasing of supplies would lower output per capita by 2.3 per cent this year and 2 per cent in 2023, according to the lender’s latest report.

ERBD estimated that economies across its region grew 6.7 per cent last year following a 2.5 per cent contraction in 2020, when Covid-19 roiled the global economy and financial markets.

Ceasing gas flows would deal the biggest blow to European Union member economies with both significant gas imports from Russia and a large dependence on gas in their energy mix, such as the Czech Republic, Hungary and Slovakia, the EBRD warned.

A sudden stop is not the EBRD’s base-case scenario, which assumes for its calculations a continued delivery of gas. Though even then, expansion is now expected to be more sluggish than the lender estimated in March, with growth forecasts trimmed to 1.1 per cent from 1.7 per cent, chiefly due to a contraction in Ukraine that is larger than previously expected.

Price pressures

EBRD economists also cut their 2023 outlook to 4.7 per cent from the 5 per cent estimate in March, citing recent increases in food and energy prices, which have added to inflationary pressures.

Runaway inflation has heaped pressure on poorer economies such as North Macedonia, Morocco, Egypt and Jordan, where food represents more than 25 per cent of the consumer price index. Average inflation in the EBRD regions reached 11.9 per cent in March 2022, approaching levels last seen at end-2008.

Ukraine’s GDP was forecast to contract 30 per cent in 2022 instead of a 20 per cent annual decline expected two months ago.

Russia’s economy is expected to shrink 10 per cent and stagnate in 2023.

“Nine years of growth would be wiped out,” EBRD chief economist Beata Javorcik said, as she emphasised that the major impact of sanctions on Russia over Ukraine would be seen in the medium and long terms.

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