BERLIN: An embargo on Russian natural gas could cause Germany’s economic output to drop as much as 5% this year, the Bundesbank warned , potentially driving the country into a recession while further pushing up already high consumer prices.
The central bank’s predictions, largely in line with those of several economic institutes, also serve as a warning of the danger Europe’s largest economy could face if Russia decides to cut off gas exports to Europe.
The central bank said that its predictions were couched in uncertainty, given the unpredictable nature of the crisis surrounding Russia’s war in Ukraine. But its economic modelling showed that cutting off Russian natural gas, which before the war accounted for 55% of Germany’s total supplies, would cause gross domestic product for the year to shrink by 2%, instead of growing by 3%.
“Natural gas prices are likely to rise the most, as Russian deliveries are difficult to replace in the short-term'', the bank said. Roughly one-third of all natural gas is used for industrial production, including steel and chemicals.
This week, the International Monetary Fund warned that the war in Ukraine would drag down the eurozone economy. It downgraded its forecast of economic growth to 2.8% from the 3.9% it had predicted in January.
Treasury Secretary Janet Yellen also warned that a ban on Russian gas could have a “counterintuitive” effect and harm Europe’s economy more than Russia’s by driving up the global price of fuel.
“Europe clearly needs to reduce its dependence on Russia with respect to energy'', Yellen told reporters in Washington on Thursday. “But we need to be careful when we think about a complete European ban.” The European Union has banned Russian coal and is preparing a plan to embargo Russian oil. Although Germany has said that it is working to end imports of Russian oil this year, it has been reluctant to move more quickly. Last year, Germany imported about one-third of its crude oil from Russia. — The New York Times