The Russian war against Ukraine is likely to cost the German economy around €175 billion this year, according to calculations published by the Institute of the German Economy (IW) in Cologne on Monday. The estimate represents a loss of prosperity of around €2,000 per person.
For the calculation, according to IW, the current situation was compared with a scenario in which there is no war and therefore no high energy prices or supply bottlenecks. This resulted in a price-adjusted loss of about 4.5 percent of Germany’s gross domestic product (GDP).
IW highlighted that the current environment came on top of an economic situation that was already challenging, and reference was made to warnings by the state-owned development bank KfW that a shortage of skilled workers and moderate productivity development already threatened prosperity in Germany.
The exceptional situation will weigh on prosperity
“The situation remains very fragile,” explained IW economist Michael Grömling. “The exceptional situation will continue to occupy us in the coming months and weigh on prosperity,” he warned.
In addition, Grömling said there had already been a loss of prosperity of another €175 billion in 2020 due to lockdowns and uncertainties caused by the coronavirus pandemic, followed by €125 billion in 2021 and a total of just under €120 billion in 2022. This results in a combined loss of €595 billion for the period 2020-2023, years hampered by a pandemic and war.
The institute sees uncertainties in the energy sector, with high costs not only for electricity and gas but also for intermediate products and raw materials, and the associated reluctance to invest as key problems. In addition, demand from private households is falling, as they are also being burdened by inflation.