Ukraine war and soaring energy costs to put 240,000 Germans out of work and wipe £220bn off economy

Germany Economy Ukraine Russia War Energy Crisis Unemployment - Fabrizio Bensch/Reuters
Germany Economy Ukraine Russia War Energy Crisis Unemployment - Fabrizio Bensch/Reuters

Almost a quarter of a million Germans could fall into unemployment next year as Russia’s war in Ukraine deals a shattering blow to Europe’s largest economy.

The German economy could be 1.7pc smaller next year than it would have been without the invasion, according to analysts at the Institute for Employment Research, and is likely to only gradually return close to its pre-war trajectory by the end of the decade.

By 2030 Germany is likely to have lost €260bn (£220bn) of economic output compared to if the war had not happened. The drag comes as war in Ukraine and sanctions on Russia push up energy, food and commodities prices and disrupt international trade.

Prior to the conflict, Germany was highly dependent on Russian gas and its industry was intertwined with both Russia and Ukraine.

Car factories in Germany rely on harnesses from Ukraine to hold wiring inside vehicles, for example, so production in the industrial heartlands took a hit when the supply was interrupted by the invasion. Exports from Ukraine have slumped since Russia invaded.

“Energy intensive” German producers of building materials, metals, glass and ceramics have all been hard hit, the report said, as disruption to gas imports sends electricity prices soaring. Chemical factories are also suffering.

Demand for German-made goods from other European countries is also falling rapidly, as costs mount and customers cut back. Domestically, German households are cutting back on spending in the face of soaring energy, fuel and food costs.

Employment is likely to take a hit in hospitality as a result, as households spend less on visits to restaurants and hotels, the analysts said.

By 2028, German employment could be 150,000 lower than it would have been without the invasion, the Institute for Employment Research said.

German unemployment is currently extremely low, at 1.24m people in June, or a rate of 2.8pc according to Eurostat. That is less than half the EU’s average jobless rate of 6pc.

One small silver lining in the German jobs market will be rising demand for teachers, in part because “the influx of refugees from Ukraine creates a greater need for language courses for adults [and] the large number of children among the refugees also increases the need for educators and teachers in primary and secondary schools”.

Similarly, higher defence spending will lead to more employment in a sector which has not traditionally attracted significant Government funding in Germany.