Bundesbank Warns Of 'Severe Crisis' Scenario Upon Russian Gas Embargo

Bundesbank Warns Of "Severe Crisis Scenario" Upon Russian Gas Embargo

TYLER DURDEN

European Union officials are considering an all-out embargo on Russian natural gas imports, which could be presented to Brussels for review in the near term. Warnings about such a ban have sparked concern among Germany's top bank, which indicated in a new monthly bulletin published Friday that an immediate, full-blown ban on Russian gas imports could exacerbate the threat of stagflation and lead to a devastating recession, according to FT. 

Bundesbank, Germany's central bank, warned that an embargo on Russian gas would cost its economy a staggering €180 billion in lost output this year as the price of energy products would soar to unimaginable levels and shock the economy into one of the deepest downturns in years. 

"In the severe crisis scenario, real GDP in the current year would fall by almost 2% compared to 2021.

"In addition, the inflation rate would be significantly higher for a longer period of time." the Bundesbank said.

The German central bank noted the European Union's economic recovery was already faltering from the fallout of Russia's invasion of Ukraine. An exogenous shock could trigger a recession. 

Discussion of a full-scale embargo on Russian gas has caused concern among companies operating in Germany's mammoth manufacturing hubs. 

Martin Brudermüller, chief executive of the chemicals group BASF, said the gas embargo would plunge its German business into its "worst crisis since the second world war."

Germany has the largest economy out of the 27-nation European Union and has vigorously opposed a ban on Russian energy imports, opting instead for a strategy that would phase out Russian energy products over time. 

"A rapid gas embargo would lead to loss of production, shutdowns, a further de-industrialization and the long-term loss of work positions in Germany," AP quoted the chairmen of the BDA employer's group and the DGB trade union confederation this week.

As much as 40% of the EU's natural gas and 25% of its oil are dependent on Russia, primarily through pipelines. One-third of Germany's total energy consumption is dependent on Russia.