European Economy
A trade dispute between Germany and Russia could damage German manufacturing – one of three leading global manufacturing hubs besides the United States and China.
According to Germany’s Federal Statistical Office, trade between Germany and Russia increased massively last year, with the value of goods traded climbing 34% to 59 billion euros ($64 billion).
Global energy research and consultancy group firm WoodMac also warned that the global economy could undergo more long-lasting changes, with the crisis possibly altering international trade.
Looking at the negatives, there are a few different ways to affect it, but the one that would really bump the needle is some kind of trade dispute between Russia and Europe.
This doesn’t just include the gas supply, whether or not Germany halts purchases or Russia turns off supply.
Following Russia’s military intervention into Ukraine, a number of countries, including the United States, Japan, and Canada, have instigated sanctions against Putin’s Russia. The EU is contemplating a ban on Russian oil imports and has said it will eventually reduce its dependence on gas from Russia by two-thirds.
For its part, Russia has insisted that what it calls “unfriendly” countries fund their energy purchases in rubles, referring to those countries that have engaged in introducing sanctions designed to isolate Russia.
The EU currently sources around 40% of its natural gas from Russian pipelines, and about 25% of that gas passes through Ukraine. Almost fifty percent of Germany’s natural gas comes from Russia.
Warnings have also been made that the world’s economy could see more changes with international trade potentially changed permanently by the crisis. If the recent pandemic underlined the need to compress supply chains, the Ukraine conflict highlights the importance of having trading partners that can be relied on. These changes could lead to a lasting adjustment to word trade. The global economy becomes more regionalized — less complex supply chains with ‘dependable partners.’
That would, in turn, result in lower GDP, higher unemployment, and reduced confidence, leading to a kind of macro-financial shock. So that’s the worrying scenario that could bump the needle.
Germany’s imports from Russia rose considerably last year, by 54.2% over 2020. Exports also increased, but at a slower rate than imports, rising 15.4%.
According to WoodMac, the main products that Germany exported to Russia were vehicles, machinery, trailers, and chemical products. Russia’s main exports to Germany were oil, gas, metals, and coal.
Russia accounted for 2.4% of German total foreign trade and was the 4th most important country for German imports outside the EU in 2021.