"Worst recession" since 1945 - top economist warns of possible consequences of an embargo on Russian gas

Created: 05/17/2022, 11:24 am

By: Thomas Schmidtutz

Compressor station for natural gas: In the event of an abrupt embargo on Russian gas, Germany is threatened with a deep recession, warns the Mannheim economist Krebs.

© Patrick Pleul/dpa

The Mannheim economist Prof. Tom Krebs warns of the drastic consequences of a delivery stop for Russian gas for the German economy. 

Mannheim – An abrupt embargo on Russian gas could plunge the German economy into a severe recession.

The economist Prof. Tom Krebs from the University of Mannheim came to this conclusion in a study published on Monday.

According to this, German economic output could collapse by up to twelve percent within a year in the event of a delivery stop, writes Krebs.

This would correspond to damage of over 400 billion euros.

It is conceivable that the economic consequences of a gas embargo would correspond to the damage during the financial crisis or the Corona outbreak in 2020.

However, it "could also lead to an economic crisis such as (West) Germany has not experienced since the Second World War," warns Krebs in the study commissioned by the trade union-affiliated Hans Böckler Foundation.

Potential embargo on Russian gas: lead time crucial

The actual extent depends primarily on the lead time.

In the case of natural gas, there is “a significant difference between an adjustment period of a maximum of one year and a three-year adjustment period”.

After that, gas imports could be replaced by 2025 and production switched to other energy sources.  

If, on the other hand, there were to be an abrupt stop in the supply of Russian gas, this could lead to a drop in production of between 114 and 286 billion euros in industry alone.

This would correspond to a minus of three to eight percent of the gross domestic product (GDP).

Initially, energy-intensive sectors such as chemicals, metal production and processing would be hit the hardest.

In addition, there would be consequential effects because, for example, there would be a lack of metals for car construction and other sectors of the economy would be affected.

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Possible embargo on Russian gas: cascading effects would increase economic damage

In addition, the impact of higher energy prices on private households would have to be taken into account.

This is because they narrowed consumers' financial leeway for other expenditures and increased macroeconomic uncertainty.

Therefore, an additional decline in GDP of another two to four percent can be expected, explained Krebs.

Since the expected price shocks for energy and food will hit poorer households in particular, this could also "exacerbate social tensions," writes the economist.

In view of the dangers and possible consequences, Krebs urgently warned against hasty gas phase-out.

An abrupt halt to the supply of Russian gas is "highly risky".

Therefore, the federal government should stick to its plan of an exit until 2024.

The unions also see a possible gas supply stop with great concern.

However, the decision does not lie in Berlin alone.

At the end of April, the Russian gas giant Gazprom stopped supplying gas to Poland and Bulgaria overnight.

As justification, Russia had referred to the refusal of the two countries to pay their bills in rubles, as demanded by the Kremlin.

A comparable delivery stop - warn numerous observers - could also happen to Germany.