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Ukraine war costs Germany's economy €100 billion

February 20, 2023

The war in Ukraine and the growing energy prices have cost the German economy about 2.5% of its GDP. While the impact milder than expected, the country still faces a minor recession.

A view shows industrial facilities of PCK oil refinery
The winter hasn't been as bad for German industry as had been feared, but it has had an impactImage: Hannibal Hanschke/REUTERS

The head of the German Institute for Economic Research (DIW) has said he expects Russia's invasion of Ukraine to continue to hamper growth and inflate costs in the German economy.

German government interventions and a mild European winter have cushioned the blow of the war and its consequences, but Europe's largest economy is likely heading for a recession.

What the DIW said

DIW President Marcel Fratzscher said the war and its effect on driving up energy prices have already cost the German economy about €100 billion ($107 billion), or about 2.5% of gross domestic product (GDP).

"The German economy has been more affected by the crisis because it was more dependent on Russian energy, has a high proportion of the energy-intensive industry, and is extremely dependent on exports and global supply chains," Fratzscher told the Rheinische Post newspaper.

There could be damage to Germany's standing as a business location if companies do not speed up efforts to use less energy and embrace digital and economic transformations, he said.

Fratzscher added that higher energy prices would remain a clear competitive disadvantage for Germany over the next decades.

A crisis of commodities and supply chains

He said policymakers and companies would have to compensate with more innovation and productivity, and that the German government should not increase subsidies for fossil fuels.

Business lobby group expects more losses

The Association of German Chambers of Commerce and Industry (DIHK), a prominent business lobby group, on Monday also highlighted the costs of Russia's war to the German economy.

The group forecasts that the war and its impact would cost Germany about 4% of GDP between Russia launching its invasion in February 2022 and the end of 2023.

DIHK President Peter Adrian told the Rheinische Post newspaper, the economy will generate about €160 billion less — roughly €2,000 per German resident.

Meanwhile, Germany's central bank predicted that the country's economy will likely enter a technical recession.

A recession is generally identified by a fall in GDP in two successive quarters, and the German economy contracted in the fourth quarter of 2022.

"Economic output in the first quarter of 2023 is likely to be lower than in the previous quarter once again," the Bundesbank wrote in its monthly report.

Looking ahead, the Bundesbank said German economic output was likely to decline slightly on average in 2023, but that it was expected to do a little better than the 0.5% fall in GDP predicted in December.

rc/dj (dpa, Reuters)