Germany: Supply chain risks have worsened again due to Russia-Ukraine crisis

Ukraine invasion is likely to have a significant impact on economic activity in Germany from March, Germany's Bundesbank said in a report. The impact has been shown in the German automotive industry with 49 production sites for suppliers and manufacturers in Russia and Ukraine. The military conflict between Russia and Ukraine has caused a negative impact on the supply chain.

Ukraine is one of the key production sites for the making of wiring harnesses used in cars. Ukraine has more than 30 automotive plants, most of them centered near the western border with Poland and other European neighbors, according to a government agency that promotes foreign investment. Hence, the German OEMs, affected by their supply chains that extend into western Ukraine, are pessimistic about Ukrainian-related supply chain disruptions. The supply of wiring harnesses has emerged as the main problem to be solved under this military crisis. Furthermore, there are other auto parts supplied by Ukrainian companies that German OEMs and auto parts manufacturers will have to consider alternative supply arrangements for, including BMW, VW, Continental, etc.

The Kiel Institute for the World Economy (IfW), one of Germany's leading economic institutes, halved the forecast for Germany's gross domestic product (GDP) growth in 2022 from 4 percent to 2.1 percent. Because the economic turbulence caused by the Ukraine crisis is expected to cost Germany around 90 billion euros ($99 billion) in economic output this year and next. However, economic recovery is ongoing gradually and IfW Kiel expects Germany's GDP growth will reach 3.5 percent in 2023.

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