Effects of the Russian invasion of Ukraine on the German economy

The Russian invasion of Ukraine that started on February has serious implications for the German economy in many ways. Even though only 3% of Germany’s foreign trade volume of EUR 2.2 trillion (2020, source: Federal Statistical Office of Germany) consists of trade with Ukraine and Russia, the recent developments affect most German companies directly or indirectly. Here is an overview of the dimensions:

• Several thousand German companies that have subsidiaries in Ukraine or Russia are directly affected. Across all industries, from the automotive industry to IT development, these subsidiaries have now mostly been closed, 2000 in the Ukraine alone (source: Association of German Chambers of Commerce and Industry, DIHK), and resumption of operations is currently not in sight.

• Other companies (in the field of machine construction for example) source commodities, such as raw material and intermediate products, from the region and are experiencing or expecting significant disruptions in their supply chains, as shown in surveys of the DIHK. The search for alternative sources, such as Scandinavia for wood, causes delays in the delivery of products, order cancellations or bears significant impacts on the costs which, depending on the market, can only partly be recuperated through price increases.

• Due to the above reasons, but also due to losing Russia and Ukraine as export markets, a share of 60 to 80% of the companies surveyed by the DIHK, depending on their location, expect significant to existence-threatening consequences from the Russo-Ukrainian crisis (sources: nw-ihk.de; baden-tv.com).

• In addition to companies with their own activities in the region, the crisis affects all companies with energy-intensive production steps that suffer massively from rising oil, gas, and electricity prices which puts them in a similarly difficult situation as companies that are directly affected, at least from the cost perspective.

• Furthermore, it is expected that all factors, especially the price increases, will lead to uncertainty and thus decreasing willingness to spend among German consumers, in other words a decrease in domestic demand in all areas of the consumer goods market.

• For many years Germany has already been a bigger and more important partner for Finnish companies than Russia. Now that Russia has been lost as a global business partner, we as Finnish organizations should turn our scope even more to the DACH region where previously unseen market potential is emerging.

However, there are many rays of hope visible in the crisis: In addition to individuals and organisations, many companies and public bodies support the people of Ukraine, be it through donations and aid shipments to Poland and Ukraine, support for refugees by providing or arranging accommodation and vital necessities here locally, or facilitating processes, such as registration here or the declaration of relief supplies, so that these can reach their destinations as quickly as possible. The government and the unions are also assisting companies that have been put in a financially existence-threatening situation by the crisis.

More information

Arndt Polifke
Email: arndt.polifke@innolinkgermany.de
Tel. +49 176 73 89 34 75