Turning point

Vladimir Putin's unjustifiable war of aggression against Ukraine, which violates international law, marks a turning point in European history. In the EU and Germany a degree of determination and drive has been developed within a few days that one would not have thought possible. This includes a level of sanctions adopted that has not been seen before. What economic effects will the war between Russia and Ukraine have on the global economy and on us? Unfortunately, the possible effects can only be estimated very roughly so far. In view of the comprehensive sanctions, however, the Russian economy could slump by ten, perhaps even twenty percent. Keeping everything else equal, this would reduce global economic growth by 0.2 to 0.4 percentage points. From today's perspective, the risk of the global economy experiencing a severe downturn or even a new recession therefore appears to be low. However, it is not only the Russian economy that is suffering; growth will also slow in other countries.

This is also the case here in Germany. Assuming a slump in exports of 80 percent, this would result in a GDP decline of 0.6 percentage points in isolation. However, Germany will also import significantly fewer goods from Russia (assuming a 40 percent decline), which would mitigate the net effect to about 0.4 percentage points. In addition to the direct trade effects, however, there are other negative effects due to the sharp rise in raw material prices and new supply chain problems. So far, we have expected economic growth of just under four percent for Germany this year. In view of current developments, we are now reducing this forecast to three percent. We still consider the risk of stagflation (economic stagnation coupled with high inflation) or recession to be low at the moment. This current situation could lead to globalization being pushed back in the next few years and losing importance for world trade. The Cold War is casting its negative shadow, and here too we are facing a turning point. In the long term, however, we do not want to lose sight of the positive: In the end, the war in Ukraine may become a spark for the United States of Europe, which will then move through the world in a less dreamlike manner and instead be able to define strategic goals in the interests of its citizens and then achieve them.