Germany faces a significant hit to its economy in 2023 due to the Ukraine war, with losses projected to reach 175 billion euros in added value. This figure comes from the Research Institute of the German Economy, known as the IW. The study explains that the war will shave about 4.5 percent off Germany’s gross domestic product when adjusted for price changes, highlighting the broad impact on production, trade, and investment.
Beyond the direct effects of the Ukraine conflict, the IW analysis also accounts for the lingering scars from the COVID-19 pandemic. When these pre-existing weaknesses are added to the wartime shock, the total hit to German economic activity rises to about 595 billion euros. The comparison is made against a hypothetical counterfactual scenario where the Ukraine conflict never began, allowing researchers to isolate the additional losses caused by this geopolitical shock.
The study also translates the economic damage into a per-person perspective. On average, each inhabitant of Germany would have about 2,000 euros less wealth in the year analyzed, reflecting the cumulative effect of reduced production, lower incomes, and the broader downturn.
The report notes a shift in Germany’s energy and industrial mix as a result of the crisis. Despite a 14 percent decline in natural gas use, the country has become more reliant on coal, liquefied natural gas, and imports of fuel from Norway. This energy transition, accelerated by sanctions and supply constraints, contributes to higher energy costs and continued volatility in the industrial sector. The IW emphasizes that these changes interact with global market dynamics, compounding the domestic economic challenges Germany faces during the period under review.
In summary, the IW assessment provides a clear picture: the combination of the Ukraine conflict and the aftershocks of the pandemic leaves Germany with sizable losses in value creation, a substantial hit to household wealth, and a restructured energy landscape that influences manufacturing and trade policy. The findings aim to inform policymakers, businesses, and households as they navigate this period of economic uncertainty. Attribution for these conclusions is provided by the IW based on their ongoing economic monitoring and modeling efforts.