Gas sanctions against Russia will strengthen the German economy

There is great concern about sanctions on Russian energy supplies. But a study by the Institute for the World Economy came to a surprising conclusion: the German economy could well cope with a sanctions.

According to the Kiel Institute for the World Economy (IFW), EU energy sanctions against Russia will hit the Russian economy barely – but hardly the economy in Germany and the EU. Given the escalating conflict in Ukraine and European and US sanctions against Russia, IFW economist Hendrik Mahlko simulated which trade sanctions in the West would affect the Russian economy the most, IFW reported on Wednesday.

“Accordingly, a ban on the gas trade would result in a drop of about 3 percent in Russian economic output, and a ban on the oil trade would result in a well-delayed 1 percent,” reads the finding. “For Germany and the European Union, the economic damage will be very small in both cases.” According to the IFW, it does not matter whether the EU imposes an import ban or Russia decides on a delivery ban.

Germany uses less gas than others

According to the IFW, in the event of a trade-off for gas, German GDP would also increase by a small 0.1 percent. “The plus reason is that the Western allies will replace the missing imports from Russia with products from coalition partners and Germany is particularly competitive here,” according to the Kiel Institute. “In the event of a gas embargo, Germany would have a cost advantage in energy-intensive production or processing of metals, for example, because its energy mix comprises only a relatively small proportion of Russian gas.”

According to IFW calculations, a trade embargo with oil would result in a 1.2 percent drop in economic output in Russia, but only 0.1 percent in Germany and the European Union. The Institute estimates that the macroeconomic impact of the ban on machines and machine parts as well as vehicles and vehicle parts will be minimal. These caused Russia’s economy to shrink by 0.5 percent and 0.3 percent, respectively. Here too, the IFW assesses the minimal impact on the economic performance of Germany and the European Union.