The German central bank has lameneted on Monday about the fact that it was increasingly likely that Europe’s largest economy would be shrinking for a “prolonged” period as Russia has completely throttled down energy supplies to the continent.
“The signs of a recession for the German economy are multiplying,” the Bundesbank said in its monthly report, warning of a “broad-based and prolonged decline in economic output”.
The likely slump was above all down to “supply-side constraints”, namely reduced deliveries of energy in the wake of the Russian invasion of Ukraine.
Moscow in a bid to show its displeasure as regards the numerous sanctions has dwindled supplies of gas to Europe and kept the the Nord Stream pipeline shut since the end of August, heaping pressure on Germany’s economy.
Germany had also been highly reliant on Russian energy imports to power some of its industry and heat its homes, with 55 percent of its gas coming from Russia before the outbreak of the war.
It had also been reported that the German GDP grew fractionally by 0.1 percent between April and June, but an increasing number of economic indicators, such as business and consumer confidence, have begun to flash red and the economy would likely shrink “slightly” in the third quarter of the year, the Bundesbank said, before a “marked” drop over the last three months of 2022 and the beginning of 2023.
The Russian gas supply stop meant that the situation on gas markets was “very tense”, it said.
Germany could “avoid formal rationing” of the fuel, but necessary reductions in consumption would lead companies to limit or pause production, the central bank predicted.