Scholz greatest fear as Germany faces ‘sharp recession’ if EU makes fatal decision

Economist explains why Germany is still using Russian gas

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The Joint Economic Forecast, published on behalf of the German economy ministry twice a year, revealed on Wednesday that Germany’s economy will only grow by 2.7 percent this year, compared to a previous forecast of 4.8 percent.

But if the EU pursued a full ban on Russian gas imports, Germany, the bloc’s biggest economy, would only grow by 1.9 percent.

The staggering drop could plunge the country into a deep recession, according to experts.

Stefan Kooths, director of business cycles and growth at the Kiel Institute for the World Economy said: “If gas supplies were to be cut off, the German economy would undergo a sharp recession.”

Germany is still rejecting a European Union ban on Russian oil at the moment and continues to oppose payments in rubles for Russian energy.

Russian President Vladimir Putin had threatened to cut off gas supplies unless foreign buyers paid in roubles, as he tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businessmen and associates of the Kremlin in response to Russia’s invasion of Ukraine.

A spokesperson for the economy ministry said German companies continue to pay for Russian gas deliveries in euros.

The Joint Economic Forecast report is set to support the German government’s reluctance to cave to other EU member states’ demands for a complete cut down on Russian energy imports to the bloc.

Europe’s biggest economy relies heavily on Russian gas but is coming under growing pressure from some European Union partners to cut supplies following Moscow’s invasion of Ukraine.

The head of energy utility association BDEW said on Wednesday that Germany must draw up a timetable to end Russian gas supplies.

Marie-Luise Wolff said in a statement: “We must now use all our energy to prepare our exit from Russian gas supplies in detail and to underpin the necessary measures with an ambitious timetable.”

A third of the gas used in Germany goes to its export-geared industry, and half of Germany’s homes depend on gas for heating.

“All companies, but also private households, must know what to expect and which screws have to be turned,” said Ms Wolff, who is the chairwoman of utility Entega, which focuses on renewable power.

The head of Germany’s energy regulatory authority, Klaus Mueller, said on Tuesday the country’s gas reserves would last until at least late summer if Russian supplies ended now.

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But Germans are underestimating the impact energy rationing might have, he said, chiming with Ms Wolff’s remarks.

Russia says it is conducting a “special military operation” in Ukraine to demilitarise its neighbour.

The German government has parliamentary approval for an emergency plan to manage gas supplies that will prioritise households and critical infrastructure.

It has put Gazprom Germania, a trading, storage and transmission business abandoned by Russia’s Gazprom, under the regulator’s control, preventing it from being bought by a Russian-backed operator.

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