The EU has just prolonged the sanctions against Russia up to January 31, 2017. Beside the restrictions on financial transactions, the sanctions encompass the export of machines and parts for oil and gas extraction, as well as weapons and so-called dual-use goods that can be used for military purposes. The Russian counter sanctions affect above all imports of agricultural produce and foodstuffs. A team of researchers from The University of Bremen and the University of Leipzig has been investigating the effects of these sanction policies on production and employment on the German economy.
German exports to Russia in a sharp downturn
The implementation of sanctions strengthened the decline of German exports to Russia that began in 2013. By 2015, Russia’s share of German exports had fallen to less than 2% (2012: 3.6%). The consequences of this sharp fall in German exports amounting to a total of 14 billion euros in the years 2014/2015 respectively 4.4 billion sanction related, taken together with an estimated further 2.6 billion euros for 2016 are not only felt by export enterprises but also by their suppliers. In order to arrive at accurate estimates of the effects of such an export shock on German production and employment levels it is necessary to also include losses in the area of supply interrelations in the analysis. This is achieved via input-output analysis.
The real economic consequences of the sanction policy
Calculations for the German economy covering the years 2014 to 2015 reveal a drop in production along the entire value added chain of export goods of almost 40 billion respectively 13.5 billion for sanction-related sectors. This is to be seen in connection with a sanction-related loss of around 60,000 jobs. In 2016 it is likely that the loss of production caused by sanctions could reach 7.8 billion euros. That is equivalent to a loss of gross value added in the region of 2.6 billion euros and an average drop in GDP of just under 0.1%. The cumulated loss of GDP (2014 to 2016) amounts to about 0.25% of the German GDP of 2015. Export orientated sectors with strong supplier relations like the car industry, mechanical engineering, electrical engineering and electronics industry are particularly hard hit. Although the food sector showed a significant fall in exports of over 30% in 2014, the loss of production output was comparatively moderate.
The lasting damaging potential of sanctions
The damage to the economy caused by sanctions is considerably greater than just a temporary loss of exports. This is because the indirect effects on production and employment are consistently higher than the direct losses due to the fact that the strongly intertwined sectors involved (e.g. the car industry, mechanical engineering) are particularly affected. The longer the sanctions are in place, the more serious will be the economic consequences for these sectors. In 2014, for instance, a 7% fall in output could be traced to sanction-related losses, whereas in 2015 the share had already risen to 56%. In 2016 it could again exceed 50%. Moreover, over the long term, lasting sanctions harbor the risk of losing markets to the competition and even touching areas not affected by sanctions as well as energy supplies – not to mention relations surrounding direct investments into Russia.
For more information, please contact:
University of Bremen
Faculty of Business Studies and Economics
Prof.Dr. Jutta Günther
Phone: +49 421 218-66630
email: jutta.guentherprotect me ?!uni-bremenprotect me ?!.de
University of Leipzig
Economics Faculty
Prof.Dr. Udo Ludwig
Phone: +49 178-6767281
email: udo.ludwigprotect me ?!iwh-halleprotect me ?!.de
