War Is Causing Some Short-Term Uncertainty among German Companies

Since the outbreak of war in Ukraine, German companies are once again experiencing some uncertainty about how their sales will develop in the future. This is the finding of an analysis conducted by the ifo Institute. Compared to the shock caused by the pandemic, however, companies are experiencing only moderate uncertainty. “The war in Ukraine has not triggered the kind of uncertainty crisis we saw at the beginning of the Covid-19 pandemic so far. And how severely companies would be affected by a potential halt to the supply of Russian gas is not a factor here,” says ifo researcher Manuel Menkhoff, one of the study’s authors.

The analysis shows that manufacturing companies are somewhat more pessimistic about their sales outlook for the second quarter of 2022 than service providers are. It also reveals that the threat of losing gas supplies apparently plays no role in the companies’ assessments of their sales situation. If the companies surveyed were to experience a 10 percent drop in gas supplies – either as a result of an EU embargo or of Russia cutting off the supply – they estimate a drop in production of 7 percent on average. “It’s possible that at the moment, companies are looking more at overall economic development, believing an interruption to gas supplies to be unlikely,” says Rüdiger Bachmann of the University of Notre Dame, United States, a co-author of the study.

The findings are based on companies’ responses regarding their best- and worst-case average sales forecast and sales expectations for the second quarter of 2022. In addition, in April 2022 companies were asked what drop in production they expected to experience at a 10 percent and a 50 percent reduction in gas supplies, and what proportion of their energy costs gas represents.