Possible stop of Russian gas add to German cyclical risks

T he drop in Russian f lows of natural gas to Germany over the last couple of weeks h as raised the risk of a further “ weaponization ” of gas by the Russian government in the coming months. While we expect in our baseline scenario a partial increase in flows after the usual summer maintenance period on Nord Stream 1 (NS1) , we cannot rule out an indefinite stoppage of flows. Such a scenario would be clearly less damaging than if it had occurred in March , as the diversification away from Russian gas has made some progress and the stock of reserves has increased too. The Federal Network Agency calculates a drop in gas during the winter months equivalent to 10% of the annual consumption in its worst - case scenario . As a first approximation , this may reduce GDP by around 0.5%. While this looks manageable there is a risk that second round effects via other downstream industries , reliant on intermediate input fr o m gas intensive industries , may exacerbate the initial shock significantly. Thus, a stoppage of gas flows, given the current weakness, would push the German economy into recession.