Germany risks “structural damage” to its status as a global industrial powerhouse if it presses ahead with gas rationing in light of the war in Ukraine, one of its leading banks has warned.
A move to “stage three” of the country’s emergency gas plan would lead to an accelerated decline in investment and the degradation of industrial facilities, Deutsche Bank analyst Eric Heymann said.
Economic minister Robert Habeck triggered the first stage of Germany’s emergency gas plan last Wednesday.
It came after Russia threatened to cut gas supplies to Germany following Berlin’s rejection of Vladimir Putin’s demands that “unfriendly” countries made payments in roubles.
Europe’s biggest economy has already called for citizens to voluntarily cut their energy use.
If plans are escalated to the third stage following a “significant disruption” to supplies, the state will intervene, effectively rationing remaining gas supplies.
The Bundesnetzagentur, Germany’s network regulator, would take charge. It would broadly prioritise household and critical institutions such as hospitals, meaning industrial supply could be curbed.
In that situation, investment would “slump sharply”, warned Mr Heymann.
“Particularly in energy-intensive industries, the long-term propensity to invest would likely decline even more, because until now security of supply has been an asset in Germany,” he said.
“Should this no longer be guaranteed, there is a risk of structural damage to Germany
as an industrial location.”
That would speed up the decline in capital stock – such as factories – across the country’s energy-intensive sector, he added.
National debt would also rise under such circumstances, Mr Heymann said, and the nationwide savings ratio would likely increase as cautious Germans choose to save rather than spend.
Economists have cut their forecasts for German growth this year as the country faces the brunt of the inflationary spillover from Western sanctions against Russia.
Inflation in the country reached an annual rate of 7.6pc during March, the highest since reunification and just above the eurozone-wide rate of 7.5pc.
Carsten Brzeski, chief eurozone economist at ING, said the war in Ukraine is “much more of a structural game-changer” for Germany than the pandemic.
“Government support schemes will dampen the adverse impact of the war but will not be able to avoid stagflation,” he said.
“The only silver lining for the German economy in our base case scenario is that the squeeze on the economy and the entire economic model will accelerate the green transition.”
He added: “Eventually, the pressing and urgent need to dramatically change the economy’s business model could be the long-awaited boost to structural international competitiveness. However, judging from where we stand today, things will first get worse before they get better.”
Moscow rowed back on Mr Putin’s rouble threat on Friday, saying it would not immediately turn off Europe’s gas taps. The Russian president issued a decree stipulating that all foreign buyers of its gas would have to open rouble accounts with Gazprombank, part of the state-owned energy giant, in order to convert their foreign currency.
States across the bloc have been working on a coordinated response to Moscow’s demands, with Germany calling them “blackmail”.
A Kremlin spokesperson said the decree would not come into effect until new payments become due in the second half of April.
The rouble has strengthened in recent weeks, nearing its pre-invasion level, partially as a result of capital controls introduced by Moscow.
