Prasannkumar 
According to the Bundesbank, the Russian gas supply cut meant that gas market conditions were “very tense”.
Monday’s statement by the German central bank indicated that it was becoming more likely that Europe’s largest economy will shrink over time as Russia reduces energy supplies to the continent.
“The signs that the German economy is in recession are multiplying,” warned the Bundesbank in its monthly report. It warned of a “broad-based, prolonged decline in economic output”.
The most likely reason for the slump was “supply-side constraints”, which were reduced energy deliveries in the aftermath of the Russian invasion.
Moscow has dwindled gas supplies to Europe and closed the Nord Stream pipeline since August 31, putting pressure on Germany’s economy.
Germany was heavily dependent on Russian energy imports to heat its homes and power its industry, with 55% of its gas coming directly from Russia prior to the conflict.
The German GDP grew by 0.1% in April and June but a growing number of economic indicators such as consumer and business confidence have started to turn red.
According to the Bundesbank, the economy will likely shrink “slightly” in the third quarter, according to the bank. This is before a “marked” drop in the first three months of 2022, and the start of 2023.
It stated that the Russian gas supply cut had made it “very tense” for gas markets.
Germany could “avoid formal fuel rationing”, but companies would need to reduce their consumption in order to stop or limit production, according the central bank.
It was unlikely that the impact would be as severe as the “adverse scenario”, which was drawn up by the Bundesbank in June. This scenario foresaw that the economy would shrink by 3.2% by 2023.
The Bundesbank stated that “the outlook is however extremely uncertain.”
Inflation rates have been at an all-time high for decades due to the reduction in gas supplies.
In August, consumer prices in Germany rose by 7.9%, which is well above the target of 2% set by the European Central Bank.
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