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As a result of the Ukraine conflict, the EU
and the US started imposing economic sanctions on Russia in March 2014. Until
August, these were of a rather soft nature: travel bans, asset freezes on
certain individuals, ban on businesses with close ties to the Kremlin. Russia
retaliated by banning selected US citizens from entering its territory.
Recently, however, the EU, the US and
Russia cranked their sanctions up a notch. While Europe put restrictions on the
export of high-tech goods and arms, the Kremlin banned food imports and transit
flights by Ukrainian airlines.
Germany,
Russia stand to suffer the most
Over 6,000 German companies do business
with Russia, it being Germany's 11th biggest trading partner.
Exports are primarily cars, machinery and electronics, while the most prominent
import is gas (39% of Germany's gas needs are met by Russian supplies). Due to this
economic entanglement, the harder and longer the sanctions, the more Germany's
economy and growth potential will suffer.
The Kremlin itself will also ache to a
degree under the sanctions (including its own) since the EU is its most vital
trading partner by far: in 2013, 50% of its exports went to and 47% of its
imports came from Europe. While not to the same extent, the EU is significantly
affected by the sanctions as well. Russia constitutes the fourth biggest export
and the second largest import country to the Union.
In a Leaders Parliament survey recently
conducted by Roland Berger Strategy Consultants and Die WELT Group among 159
German managers, almost two-thirds of the respondents believed that sanctions
are likely to remain in place for up to two years. More than half of the
participants voiced concerns that the impact on the German economy will
constitute up to half a percentage point less GDP growth in 2014.
Although the German economy can rely on
growing consumption, stable energy prices and a strong labor market, the
economic sanctions cannot be left out of the calculation. Thus revising its
economic scenario of January 2014 with a growth rate of 2.0%, the Roland Berger
Strategy Consultants forecast sees a similar drop in growth to 1.7%.
"Had the
economic sanctions not been tightened, we would not have revised our forecast
at all," explained Prof. Dr. Burkhard Schwenker, chairman of the
supervisory board of Roland Berger Strategy Consultants. Schwenker's rationale:
"With its industrial expertise and its strength, the German economy has
held up well in the face of unfavorable developments in countries like Japan or
Brazil. The current geopolitical situation brings additional uncertainties,
though."
Find
out more in our latest Economic Update, which you can download here.
