Two years of war in Ukraine: The crux of the matter: How much does the war in Ukraine cost Germany?

This article is adapted from the business magazine Capital and is available here for ten days.

Two years of war in Ukraine: The crux of the matter: How much does the war in Ukraine cost Germany?

This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.

February 24th marks the second anniversary of the Russian attack on Ukraine. Since then, the effects have hit Germany primarily financially: two economic institutes have now published figures on how much the consequences of the Ukraine war have cost the federal government in the past two years. But the numbers have their pitfalls.

Marcel Fatzscher, head of the employee-oriented German Institute for Economic Research (DIW), speaks to the "Rheinische Post" of significantly more than 200 billion euros. “Above all, the high energy costs have reduced growth in Germany by 2.5 percentage points or 100 billion euros in 2022 and by a similar amount in 2023 to date,” said Fratzscher.

In a more detailed study, the employer-related Institute of the German Economy (IW) assumes that the war has cost Germany's economy 240 billion euros so far. “While the defaults in 2022 are around 100 billion euros, they rose again to a good 140 billion euros in 2023,” said IW expert Michael Grömling. This corresponds to losses in gross domestic product (GDP) of almost 3 percent (2022) and a good 4 percent (2023). However, he also includes the consequences of the corona pandemic in 2022 and 2023 in this total. The Gaza war will also be added in the fourth quarter of 2023.

What costs exactly were included in the IW model calculation? The entire range of national accounting, Grömling told Capital. In order to estimate the loss of production and prosperity, he included all data from the Federal Statistical Office on inflation and the resulting loss of consumer spending and investments up to January of this year. Grömling also estimated the decline in foreign trade. “We all experienced it when the inflation rate was at 10 percent at times. This is an immense loss of purchasing power and has ultimately contributed to a persistent weakness in consumption for the past two years,” says Grömling. The energy crisis and higher electricity and gas costs in particular caused prices to rise.

In order to calculate the costs, the economists created a modeled world in which they try to ignore the burdens of the past few years - and pretend that the economic dynamics of the pre-crisis period had continued without any problems. The difference between the real economic development and this “counterfactual” development ultimately results in the sum of the overall economic losses. This means that not only the war in Ukraine, but also other influences on the economy such as the war in Gaza or the aftermath of the corona pandemic are taken into account.

Grömling explains that the war-related losses in 2023, at 140 billion euros, were even higher than in 2022 (100 billion euros): In the second year of the war, the losses hit the jackpot. In addition to the further reduction in consumer spending, the increase is primarily due to the significantly higher production costs on the part of companies - and the associated loss of competition.

“The geopolitically-related supply risks with energy and intermediate services cause additional cost shocks,” analyzes Grömling. The Russia sanctions imposed in 2022, which affect numerous German companies, also played a role. New trade restrictions hit supply chains that were already disrupted due to the pandemic. “The situation in the Middle East and the impact on global shipping traffic have been increasing these effects since autumn 2023,” analyzes Grömling.

The immense slowdown in the global economy has resulted in export business being slowed down significantly. As an export nation, Germany is hit particularly hard when local companies find it difficult to sell their products abroad.

The IW calculation is only an approximation of the actual costs, but it still reflects the overall economic development of the past few years - and explains the current difficult situation: Just this week, the federal government presented its annual economic report, in which it reported mini-growth of 0.2 percent is expected for 2024. Federal Economics Minister Robert Habeck (Greens) cited weak global trade as a reason, among other things, which is putting a strain on the German economy, which has strong exports.

The energy-intensive industry, which is overly dependent on Russian gas, is also a reason for the poor economic prospects. Gas and other energy sources had become drastically more expensive as a result of Russia's war of aggression against Ukraine and as a result of the withdrawal of energy supplies from Russia. The state tried to counteract this with price brakes and thus help private households. At the end of 2023, the government also decided to reduce the burden on companies that consume a lot of energy through an industrial electricity price.

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