The Ukraine War and the Economy – Morning Briefing Plus

Hello dear readers,

Last week there was this one brief moment of hope. For the first time since the beginning of the Russian war of aggression, there were signs of rapprochement when Russia’s Foreign Minister Sergey Lavrov spoke of progress in the Ukraine negotiations. The stock exchanges reacted promptly with a jump in prices.

But as soon as it seemed to some, there will be no more in-depth negotiations or even a ceasefire: while Ukrainian President Volodymyr Zelensky was speaking in front of the Bundestag via video link, bombs continued to fall on Kyiv. His appeal, “Mr. Chancellor, give Germany the leadership that Germany deserves,” went unheeded. The federal government was unable to respond.

My colleague Martin Murphy, meanwhile, has been speaking to military experts about the question how this seemingly hopeless situation can be resolved. Most likely scenario: In two weeks, both warring parties will be militarily exhausted. Vladimir Putin will be ready for talks because of his own military weakness. However, it is unclear whether the war will continue or not – according to the experts, one thing is certain: Putin must find a solution “that looks like victory”.

In any case, the economy is feeling the full force of the crisis: Energy prices are rising, supply chains are breaking – and many raw materials are becoming scarce. Last week, numerous economic research institutes cut their growth forecasts, some drastically. The Handelsblatt Research Institute (HRI) lowered expectations from 3.4 percent to 2.7 percent.

The economists expect a growth rate of two percent next year. “Since this development will continue, growth in overall economic output will no longer be a matter of course from the 2030s onwards,” warns HRI President Bert Rürup.

The effects can be felt worldwide:

All this shows: The war in Ukraine is not just a turning point in terms of security policy. The coordinates are also shifting economically – and that is without a doubt a threat to the German business model in particular, as our big cover story shows.

But if Europe has proved one thing in the past few weeks, then it was the ability to act together: within hours, the countries of the EU agreed on a historically unprecedented package of sanctions against Russia, a strategy for the future gas supply of the continent and a plan for dealing with millions of refugees from Ukraine. European economic politicians should now use this energy to also revitalize the continent economically.

What else kept us busy this week:

1. Meanwhile, politicians are preparing for an emergency: a failure of Russian gas supplies. To this end, the Federal Network Agency is developing plans as to which companies must go off the grid first in the event of a delivery stop, the Handelsblatt energy team learned from industry and government circles. Much is still uncertain in the debate, for example which companies will be affected first. For the vast majority of companies, even short delivery stops cause enormous damage.

2. The media are reporting intensively these days about the millions of refugees from Ukraine. At the same time, Russia is also experiencing a dramatic exodus, as this correspondent report shows. Thousands of well-trained scientists, computer specialists and founders can no longer imagine a future under Vladimir Putin. Particularly affected by the emigration: the IT industry. Entrepreneurs are running out of skilled workers – a consequence of the war that endangers Russia’s economic future in the long term.

3. It is a debt risk with dimensions in the billions: The largest listed companies in Germany are indebted twice as much as they were ten years ago, according to exclusive calculations by my colleague Ulf Sommer. This has been a problem since the start of the Ukraine crisis at the latest. At the forefront: Deutsche Telekom, followed by Delivery Hero, Bayer, Fresenius and Siemens Healthineers.

4. The central banks are faced with a dilemma: Actually, they should raise key interest rates more to combat rising inflation in many countries. But that could send economies into recession. I recommend three interviews this weekend on this conflict: The asset manager Bert Flossbach believes that central banks cannot stop inflation. He says in the Handelsblatt: “There is a threat of an oath of disclosure from the central banks” – and relies on shares and gold. Bundesbank boss Joachim Nagel in turn defends the course of the central banks: “In view of the high level of uncertainty, I think it is very important that we don’t predetermine ourselves, but remain flexible,” he says. US economics Nobel laureate Joseph Stiglitz again says: “We are stuck in the fog. One thing is certain: it is a caesura”.

5. Many German companies had outsourced IT processes to tech start-ups in Ukraine. Its founders were just writing code, now they are helping to save their country, as Hannah Krolle and Thomas Jahn describe. They lug relief supplies into the war zone, fight in the Ukrainian army or continue their work in improvised shelters. A highly readable report about the work from the bunker.

6. Fuel prices are reaching unprecedented record highs these days. But while the price of oil has fallen sharply again after a brief peak, a liter of diesel or petrol still costs 50 cents more than before the outbreak of war. Is this really a rip off? And what’s next for drivers? Our energy reporter Kathrin Witsch has the answers.

7. With all the bad news, it still exists, the technological awakening in Germany: Magdeburg could become one of the most important chip locations in Europe. As our corporate department reported earlier this week, the US chip group Intel wants to invest 17 billion euros there to build two new factories.

8th. Speaking of the future: No trend researcher can derive technology trends as well as the American futurologist Amy Webb. US correspondent Stephan Scheuer and Leonie Natzel have summarized their most important theses. Spoiler: cyber weapons, NFTs and high-tech medicine in the living room will determine the tech world of the future. But see for yourself.

9. There are two moments from the past week that stick in my mind. There is Selenski’s emotional appearance in the Bundestag, to which the federal government found no answer. And then there is the courageous appearance of the journalist Marina Owsyannikova, who caused a sensation around the world with her protest action on Russian television. She had worked for the station herself and was ashamed to have allowed “lies to run across the screen”. Ovsyannikova reminded us once again how important free media are, critical journalism – and yes, media contradiction too.

I wish you a sunny and relaxing weekend. As always, we will keep you updated 24/7.

It greets you cordially
Yours Sebastian Matthes

Editor-in-Chief of the Handelsblatt

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