Leading German economic institutes have said an immediate embargo on Russian fossil fuel supplies would lead to a 2.2% drop in GDP in 2023 – in line with other recent forecasts, which contrast with government warnings about the consequences serious for the economy. The joint economic forecasts of the IfW, DIW, Ifo Institute, IWH and RWI Essen predict a 1.9% increase in GDP this year.
Yet economic institutes are warning of a possible economic downturn ahead. “If the gas supply is cut off, the German economy faces the threat of a deep recession,” said Stefan Kooths, vice president of the Kiel Institute for the World Economy, lead author of the report. .
Due to the high level of uncertainty regarding Russian gas supplies, which are important for the German economy, the institutes have calculated two economic development scenarios in their forecasts. One assumes continued gas supplies and no further economic escalation (baseline scenario), the other assumes an immediate halt to Russian gas supplies (alternative scenario). In the scenario of an immediate embargo, the gross domestic product (GDP) falls by 2.2% in 2023. The cumulative loss of GDP in the event of a supply freeze amounts to 220 billion euros over the two years 2022 and 2023 alone, which is equivalent to more than 6.5% of annual economic output.
Germany is under considerable pressure from other EU member states to sign a full energy embargo on Russian oil and natural gas supplies. However, the government has repeatedly warned that weaning the country off Russian gas would plunge Europe into recession and put hundreds of thousands of jobs at risk. The EU – with Germany’s backing – recently decided to halt hard coal imports from Russia, but agreed to a four-month phase-out period. An oil embargo is currently under discussion.