Business leaders in Germany are increasingly worried about the impact Russiaâ€™s war in Ukraine will have on the German economy, Europeâ€™s largest, where inflation, disrupted supply chains and the high price of energy are leading to fears of a recession.
Across the country, industrial sectors including manufacturing and steel and chemical production are being forced to idle plants and furlough workers, some of whom only recently returned after coronavirus-related shutdowns. The moves are driving fears that the longer the war continues, the more it could upend Germanyâ€™s globalized, export-focused economy.
A survey of business sentiment on Tuesday reflected the uncertainty, registering its largest month-to-month drop since 1991. The monthly indicator of economic sentiment by the Center for European Economic Research, based in Mannheim, plunged 93.6 points, to negative 39.3 points for March.
â€œA recession is becoming increasingly likely,â€ said Achim Wambach, president of the center, known by its German initials ZEW. â€œThe slump in economic expectations is accompanied by sharply increased expectations for inflation. Experts therefore expect stagflation in the coming months.â€ (â€œStagflationâ€ is the term for the combination of sluggish economic growth and high inflation.)
Two days before Russia launched its wider invasion of Ukraine on Feb. 24, a different survey indicated that business sentiment was recovering from the six months of uncertainty that accompanied a surge in Covid cases at the end of 2021.
Since then, persistently high energy prices have been driving up consumer prices. Germanyâ€™s inflation rate rose to more than 5 percent in February, according to official government statistics.
The punishing sanctions enacted on Russia have forced hundreds of German companies to stop conducting business there, and still others have been hit by the fallout of severing their financial ties and communication with the country.
Volkswagen is one of hundreds of German firms that halted production in Russia in the days after the invasion, although it continues to pay its employees 80 percent of the salaries and organize donations to Ukrainians who have fled their country.
â€œAlready now, we are seeing the effects of the war on the global economy, on raw materials and on supply chains,â€ Herbert Diess, the chief executive of Volkswagen, told reporters on Tuesday.
â€œIf the war drags on, it would seriously threaten a world order that has brought freedom and prosperity to many parts of the world over the past decades,â€ he said. â€œEurope would suffer the most in such a scenario.â€