The chief economist at Standard & Poor’s Global warned on Tuesday that a financial shock could be imminent if there was a “trade rupture” between Russia and Germany.
“Looking at the downside scenario…there are a few different ways to play that, but we think the way that will really move the overall needle is kind of a business rupture between Russia and Europe,” Paul Gruenwald told CNBC’s “Squawk Box Asia.”
“This is not just about cutting off gas – whether Germany stops buying or Russia stops,” he added.
After the unprovoked Russian invasion of Ukraine, many world powers including the United States, Japan and Canada Moscow hit with sanctions. The European Union is considering whether to ban oil imports from Russia, and it has done so It eventually pledged to reduce its dependence on Russian gas by two-thirds.
Russia, for its part, demanded that So-called “unfriendly” countries pay in rubles for gasreferring to those who have imposed severe economic sanctions aimed at isolating Russia over its unprovoked attack in Ukraine.
Gruenwald added: “We have the energy complex, we have commodity prices, we have the industrial inputs that Europe imports, like nickel and titanium and other things like that.”
Research and consultancy firm Wood Mackenzie also warned that the global economy could go through “more permanent changes” with global trade potentially altered by the crisis.
“If the COVID-19 pandemic highlights the need to shorten supply chains, the war in Ukraine underscores the importance of reliable trading partners,” research director Peter Martin wrote in a note on Tuesday.
“These forces could lead to a permanent reorganization of global trade. The global economy is becoming more regional – supply chains are shorter with ‘trusted’ partners.”
Gruenwald said the trade split between Germany and Russia could limit German manufacturing – one of the three global manufacturing centers along with the US and China.
“That would lead to … lower GDP, lower employment, lower confidence – and then we would get some kind of macro-financial shock as a result. And that is the kind of scenario we are concerned about that might move the needle,” he cautioned.
Trade between Germany and Russia jumped significantly in 2021 compared to the previous year, 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 rose significantly last year, increasing by 54.2% compared to 2020. Exports also rose, but at a slower pace than imports – increasing by 15.4%.
Among the most important products exported by Germany to Russia are cars, machinery, trailers and chemical products, according to the agency. The main Russian exports to Germany included crude oil, natural gas, minerals, and coal.
Russia accounted for 2.3% of all German foreign trade, and was the fourth most important country for German imports outside the European Union in 2021.
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