German economy to lose €260bn due to Ukraine war, high energy costs

The German economy stands to lose more than €260bn in added value by the end of the decade as a result of Russia's war in Ukraine and soaring energy costs, according to a study by the Institute of Employment Research that was published on August 9.

The war and the energy crisis will result in German GDP coming in 1.7% lower next year, the study stated, and there will be some 240,000 people less in employment. The employment level will remain at around this level until 2026, and among the hardest hit sectors will be hospitality, and energy-intensive industries such as chemicals and metal production.

The German economy has benefited over the years from low energy costs, largely as a result of ample and affordable Russian supply. But that dependence on Gazprom has now come back to bite, following steep reductions in gas flow via the Nord Stream in recent months. Germany also decommissioned some 4 GW of its nuclear power output at the end of last year, and government policy currently states that a similar amount will be closed down at the end of 2022. This said, an increasing number of politicians are now calling for the plants to remain online for longer, given the stress on the country's energy system.

German chancellor Olaf Scholz said last week that running the last three nuclear stations past their decommissioning date of December 31, 2022, "can make sense" given the current situation. But he stressed that such a move could only be decided based on the results of a series of stress tests on the German power systems, to determine if keeping the plants online for longer might be better.

However, others in Germany's coalition government are less than receptive to the idea of prolonging nuclear power generation, including some in Olaf's own Social Democratic Party. The party's leader Saskia Esken said on August 4 that the decommissioning schedule would not be revised, while Green foreign minister Annalena Baerbock ruled it out as "not an option."