German GDP Would Lose Up to 12% With an Embargo on Russian Gas

The Institute for Macroeconomic Studies (IMK) published a study showing that the immediate interruption of the Russian gas supply would cause a 12 percent decrease in Gross Domestic Product (GDP) in the worst case scenario.

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This loss would be the result if the effects on production and demand are especially strong. If the effects were less forceful, the German GDP would only decrease by 3.2 percent.

The study carried out by the economist Tom Krebs at Mannheim University contemplates two scenarios. The first one predicts that the interruption of gas supply would have an effect on production, which would lead in the short term to a GDP drop of between 3.2 and 8 percent.

The second scenario, based on the assumption that alternatives to Russian gas are quickly obtained, would generate a GDP drop of between 1.2 and 3 percent. To this should be added effects on demand that could lead to GDP falling between 2 and 4 percent.

In any case, an immediate interruption of supplies would cause long-term damage by reducing the German productive potential and weakening the pillars of growth. There could be strong repercussions on the labor market and an increase in unemployment that could hardly be compensated with usual economic policy instruments such as subsidized short-time work.

The subsequent recovery could be slow, and the study points out that the rapid recovery that the German economy had after 2009 is the exception and not the rule in major crises. The study warns that the calculations on the repercussions of an interruption of the gas supply have a margin of insecurity greater than that of other economic studies.

About half of the gas consumed in Germany, as a source of energy or as a raw material, comes from Russia. This energy dependency has made Germany reluctant to impose a gas embargo on Russia, and the government is looking for ways to diversify supply sources and accelerate the development of renewable energy.