“Looking at a downside scenario … there are slightly different ways to play this, but we think the one that would really move the macro needle is some kind of trade rift between Russia and Europe,” Paul Gruenwald told CNBC’s Squawk Box Asia. . “This is not just a gas cut – either Germany stops buying or Russia cuts it,” he added. In the wake of Russia’s unprovoked invasion of Ukraine, many world powers, including the United States, Japan and Canada, have hit Moscow with sanctions. The European Union is considering whether to ban oil imports from Russia and has pledged to eventually reduce its dependence on Russian gas by two-thirds. Russia, for its part, has called on so-called “unfriendly” countries to pay in rubles for gas, citing those that have imposed heavy economic sanctions in order to isolate Russia for its unprovoked attack on Ukraine. The European Union receives about 40% of its natural gas from Russian pipelines and about a quarter of it flows through Ukraine. Germany gets about half of its gas from Russia. That would lead to … lower GDP, lower employment, lower confidence – and then we would receive a kind of macroeconomic shock from it. Paul Gruenwald Chief Economist, S&P Global Gruenwald added: “We have the energy complex, we have commodity prices, we have industrial inputs that Europe imports, such as nickel and titanium and things like that.” Research and consulting firm Wood Mackenzie also warned that the global economy could undergo “more permanent changes” with global trade likely to change as a result of the crisis. “If the Covid-19 pandemic underscored the need to reduce supply chains, the war in Ukraine underscores the importance of having credible trading partners,” Research Director Peter Martin wrote in a note Tuesday. “These forces could lead to a permanent realignment of world trade. The global economy is becoming more regional – smaller supply chains with ‘reliable’ partners.”
Trade between Germany and Russia
A trade rift between Germany and Russia could hit German manufacturing – one of three global manufacturing hubs in addition to the US and China, Gruenwald said. “This would lead to … lower GDP, lower employment, lower confidence – and then we would receive a kind of macroeconomic shock from it. So this is the kind of scenario we are worried could move the needle,” he warned. Trade between Germany and Russia jumped significantly in 2021 compared to the previous year, with the value of goods increasing by 34.1% to 59.8 billion euros ($ 65 billion), according to the German Federal Statistical Office. Germany’s imports from Russia increased significantly last year, up 54.2% from 2020. Exports also increased, but at a slower pace than imports – up 15.4%. The main products that Germany exported to Russia were vehicles, machinery, trailers and chemicals, according to the agency. Russia’s main exports to Germany included crude oil, natural gas, metals and coal. Russia accounted for 2.3% of Germany’s total foreign trade and was the fourth most important country for German imports outside the European Union in 2021.
