BERLIN (Reuters) – The leading institutes are warning of a severe recession and the highest inflation in the history of the Federal Republic if Russian gas supplies are stopped.
According to the federal government’s spring forecast published on Wednesday, gross domestic product should increase by 2.7 percent this year assuming normal supply. In the autumn report, 4.8 percent had been estimated. “The recovery from the Corona crisis is being dampened as a result of the war in Ukraine, but is gaining the upper hand,” said Stefan Kooths, Vice President and Economic Director of the Kiel Institute for the World Economy (IfW). “For 2023, on the other hand, the forecast was raised from 1.9 to 3.1 percent.
However, if Russian gas supplies are stopped immediately, the economic picture looks much bleaker. The economy should then only grow by 1.9 percent this year and then even shrink by 2.2 percent in 2023. “If gas supplies are stopped, the German economy is threatened with a sharp recession,” warned Kooths. In both years, a total of 220 billion euros in economic output would then be in the fire. “In terms of economic policy, it would then be important to support marketable production structures without stopping structural change,” said Kooths. Politicians should use very targeted measures to help private households to cushion the impact of high energy prices. “If such aid is given across the board, it will also drive up inflation and torpedo the important steering effect of higher energy prices,” warned the economist. This in turn exacerbates the problems of low-income households.
NO RELAXATION ON PRICES
For the time being, economists do not have good news for consumers. Accordingly, prices this year will rise by an average of 6.1 percent more than they have in 40 years. “In the event of a supply stop for Russian energy, even 7.3 percent would be reached, the highest value since the founding of the Federal Republic,” according to the forecast. In the coming year, too, the rate at 2.8 – or 5.0 percent in the event of a delivery stop – is likely to be well above the average since reunification.
The number of unemployed is expected to fall by around 300,000 to almost 2.3 million this year and remain at this level in 2023. If the gas supply stops, however, the number of unemployed is expected to rise to almost 2.8 million next year.
The so-called joint diagnosis of the institutes serves the federal government as a basis for its own projections, which in turn form the basis for the tax estimate. The report, entitled “From the pandemic to the energy crisis, economy and politics in permanent stress”, was prepared by the RWI in Essen, the DIW in Berlin, the Ifo Institute in Munich, the IfW in Kiel and the IWH in Halle.