Brandenburg Gate in Berlin on the occasion of Earth Hour, on March 26, 2022.
Tobias Schwarz AFP | Getty Images
Germany’s heavy reliance on Russian energy could plunge its economy into recession, an independent economic think tank warned on Wednesday.
There are rapidly growing concerns about what Russia’s unprovoked invasion of Ukraine will mean for European economies. The war has contributed to higher energy prices, it’s also driving up food prices, and there are additional costs to cope with a massive influx of Ukrainians fleeing the war.
There is also a lingering risk that Moscow could cut its natural gas supplies to the bloc – which could mean collapse for many companies.
“The high dependency on Russian energy supplies harbors a considerable risk of lower economic output and even a recession with significantly higher inflation rates,” said the German Economic Advisory Council, which advises the government in Berlin, in a report on Wednesday.
Chancellor Olaf Scholz expressed similar concerns to the Bundestag last week: An immediate ban on imports of energy from Russia “would plunge our country and all of Europe into a recession”.
His statements highlighted the dependence of Germany and other EU countries on Russia for energy supplies.
In 2020, for example, Germany imported almost 59% of its natural gas from Russia, according to the European Statistics Office. Other EU nations registered even greater dependencies, with the Czech Republic importing 86% of Russian gas and Latvia and Hungary importing more than 100% – meaning they were buying more than they needed domestically.
Germany should immediately do everything possible to prevent an interruption in Russian energy supplies.
Advisory Council of German Business
Earlier on Wednesday, Germany’s Economics Minister Robert Habeck issued a first warning of three possible levels of gas supplies. He urged businesses and households to reduce their energy consumption, saying “every kilowatt-hour counts,” according to Reuters.
Energy dependency has become even more of a concern for Europe after Russia’s President Vladimir Putin said last week that “unfriendly” nations would have to pay for natural gas in rubles. This plan would prop up the Russian currency, which has crashed in the wake of the invasion of Ukraine. Putin previously set a deadline for ruble payments of March 31.
However, western nations, including Germany, have said this is a breach of contract and urged companies to continue paying in euros or US dollars. The division increases the likelihood of a disruption in energy flows.
“Germany should immediately do everything possible to prevent an interruption in Russian energy supplies and to quickly end its dependence on Russian energy sources,” said the German Economic Advisory Council on Wednesday.
The scientific institution forecast a gross domestic product rate of 1.8% for Germany this year and 3.6% in 2023 – provided that energy supplies are not interrupted.
In terms of inflation, estimates point to a rate of 6.1% this year and 3.4% in 2023 for Europe’s largest economy.
On Wednesday, European Central Bank President Christine Lagarde said the war in Ukraine “poses significant risks to growth,” adding that European budgets “could become more pessimistic and cut spending.”