Chancellor Olaf Scholz has stood firm on Germany’s resistance to an immediate embargo on Russian fossil fuels and warned it would trigger a recession, as economists cut growth forecasts for Europe’s biggest economy. Europe.
Scholz told the Bundestag on Wednesday that cutting Russian energy imports immediately would trigger an economic crisis. Other European states and the United States are pushing for the EU to impose tougher sanctions on Russian energy, but Germany has resisted because more than half of the gas and coal it imports comes from of Russia, as well as a third of its oil.
“Doing this overnight would mean plunging our country and the whole of Europe into recession,” the German chancellor warned ahead of meetings with other EU leaders and a G7 meeting with the US president. Joe Biden in Brussels this week. “Hundreds of thousands of jobs would be at risk,” he said. “Whole branches of industry are on the brink.”
Scholz was backed by the BDI, Germany’s main business lobby group, which warned that cutting off Russian gas supplies to the EU would have “incalculable consequences” and lead to “production disruptions, losses jobs and, in some cases, massive damage to production facilities”. .
“The EU is not prepared for a comprehensive energy embargo in the short term,” said BDI President Siegfried Russwurm, adding that “it would jeopardize [EU] unit and [its] ability to act economically and politically”.
The BDI, which represents more than 100,000 German companies, said it supported the sanctions imposed so far, but a Russian gas boycott threatened to “tear the EU apart”.
“Sanctions must not hit European states harder than Russian leaders,” Scholz said, adding that trade restrictions were already hurting German citizens, not only with rising fuel prices, but also with factories warning that ‘they might have to suspend work.
His comments come as economists cut their growth forecasts for Europe’s biggest economy, warning that soaring energy and food prices will erode German consumer and business confidence and spending.
The Ifo Institute, a Munich-based think tank, cut its forecast for German gross domestic product growth this year to between 2.2% and 3.1%, down from an earlier forecast of 3.7%. He said higher prices would erode consumers’ purchasing power by 6 billion euros in the first quarter.
“The Russian onslaught is slowing the economy due to a combination of significantly higher commodity prices, sanctions, growing bottlenecks in the supply of raw materials and intermediate products, and economic uncertainty. increased,” said Timo Wollmershäuser, head of forecasting at Ifo.
German GDP grew 2.9% last year and despite contracting in the last three months of 2021, growth was expected to accelerate this year, boosted by the lifting of restrictions to control the coronavirus and an easing of restrictions. supply bottlenecks in the industry.
However, Germany’s dependence on Russian energy imports has exposed it to soaring oil and gas prices, while its vast industrial sector is hit by disruption of supplies of key materials from Russia and other countries. Ukraine.
Ifo said its worst-case scenario was based on oil prices reaching €140 a barrel in May and staying above €120 a barrel by the end of the year, while natural gas prices would reach €200 per MWh in May and remain above €160 per barrel. MWh for the rest of the year.
Daily data collected by research firm Morning Consult showed German consumer confidence had fallen since Russia invaded Ukraine, falling to 65 on March 23 from 80 in early February. Any number below 100 indicates a higher proportion of consumers with a negative opinion of their personal and general economic situation than those with a positive opinion.
Nearly 40% of German consumers reported a deteriorated personal financial situation and expected it to deteriorate further this year, according to Morning Consult. More than a quarter said it was a bad time to make major purchases.
The steady recovery in visits to German retail and entertainment venues this year stalled in March, according to data from Google Mobility, indicating that rising prices are already stifling consumer spending.
German consumer prices rose 5.5% from a year earlier in February and economists expect them to continue rising. Christian Ossig, chairman of the German banking association, said on Wednesday he expected inflation to top 7% in the coming months.
“Sharp energy price increases and worsening supply bottlenecks are the main drags on the economy,” Ossig said, predicting German growth would slow to 2.2% this year. if the war in Ukraine did not worsen further. “However, half of this growth is based on statistical effects from the previous year,” he added.