A full-scale embargo on Russian energy would plunge German business into its “worst crisis since the second world war,” Report informs, with reference to the Financial Times.
“Germany would forfeit €220bn in economic output in 2022 and 2023, equivalent to 6.5% of gross domestic product,” says Stefan Kooths of the Kiel Institute for the World Economy.
The Bundesbank estimates that a 5% hit to growth amounts to a €165bn drop in output and not €180bn, as originally stated. In its simulation, the Bundesbank assumed that industrial consumers could not replace Russian gas with alternative energy sources for three quarters in a row. In such a scenario, inflation — which, at 7.3%, is already at a post-reunification high — would shoot up by another 1.5 percentage points this year, exacerbating the threat of stagflation, where strong price pressures are coupled with weak growth.
The 5% hit to growth would push the German economy into one of the biggest post-financial crisis recessions, as overall GDP would shrink by 2%.