A financial shock could be expected in the event of a “trade rupture” between Russia and Germany, the chief economist of S&P Global warned on Tuesday.
“Looking at a negative scenario…there are a number of different ways to play this, but we think the one that would really move the macro needle is some sort of trade break between Russia and Europe,” Paul Gruenwald told CNBC’s “Squawk Box Asia”.
“It’s not just about cutting off the gas – whether Germany stops buying or Russia cuts it off,” he added.
Following Russia’s unprovoked invasion of Ukraine, several world powers, including the United States, Japan and Canada, imposed sanctions on Moscow. The European Union plans to ban oil imports from Russia and has pledged to eventually reduce its dependence on Russian gas by two-thirds.
Russia, for its part, demanded that so-called “unfriendly” countries pay for the gas in roubles, referring to those who imposed heavy economic sanctions intended to insulate Russia from its unprovoked attack on Ukraine.
The European Union receives about 40% of its natural gas from Russian gas pipelines and about a quarter of it transits through Ukraine. Germany gets about half of its natural gas from Russia.
Gruenwald added: “We have the energy complex, we have commodity prices, we have industrial inputs that Europe imports, like nickel and titanium and stuff like that.”
Research and advisory firm Wood Mackenzie also warned that the global economy could undergo “more permanent changes” with global trade possibly affected by the crisis.
“While the Covid-19 pandemic has highlighted the need to shorten supply chains, the war in Ukraine highlights the importance of having reliable business partners,” research director Peter Martin wrote in a note. of Tuesday.
“These forces could lead to a lasting realignment of global trade. The global economy is becoming more regionalized – shorter supply chains with ‘trusted’ partners.”
Trade between Germany and Russia
A trade rift between Germany and Russia could hurt German manufacturing – one of the world’s three manufacturing hubs along with the United States and China, Gruenwald said.
“That would translate into … a drop in GDP, a drop in employment, a drop in confidence – and then we would have a kind of macro-financial shock. So that is the kind of scenario that we are worried about and that could move the needle,” he warned.
Trade between Germany and Russia jumped significantly in 2021 from a year earlier, with the value of goods jumping 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, increasing by 54.2% compared to 2020. Exports also increased, but at a slower pace than imports, with an increase of 15 .4%.
The main products exported by Germany to Russia are vehicles, machinery, trailers and chemicals, according to the agency. Russia’s main exports to Germany were crude oil, natural gas, metals and coal.
Russia accounted for 2.3% of total German foreign trade and was the fourth most important country for German imports from outside the European Union in 2021.