Economics groups calculates cost of Ukraine war on German economy

By André Stahl, dpa

The leader of the German Institute for Economic Research (DIW) expects Russia’s invasion of Ukraine to continue to drag down growth and increase costs in the German economy.

The war and its effect on driving up energy prices has cost the German economy about €100 billion ($107 billion), or about 2.5% of the country’s economic output, Marcel Fratzscher, the president of DIW, told the Rheinische Post newspaper on Monday.

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

He said that permanent damage to Germany’s standing as a business location could occur if companies do not accelerate efforts to use less energy and embrace digital and economic transformations.

In Fratzscher’s view, higher energy prices will remain a clear competitive disadvantage for Germany over the next decades. Political leaders and companies will need to compensate for those costs with greater innovation and productivity.

The German government, Fratzscher argued, should absolutely not continue heavy subsidies for fossil fuels. The German government rolled out an extensive programme of subsidies last autumn in response to rapidly rising gas prices.

The Association of German Chambers of Commerce and Industry (DIHK), a major business lobby group, has also highlighted the costs of Russia’s invasion to the German economy.

The group projects that the war will cost Germany about 4% of potential gross domestic product (GDP) during the period between when Russia launched its invasion in February 2022 and the end of 2023.

In other words, DIHK President Peter Adrian told the Rheinische Post newspaper, the economy will generate about €160 billion less. That works out to roughly €2,000 per German resident.