1 In 3 German Companies Expect Business With Russia To Decline Sharply This Year

Putin merkelREUTERS/Thomas PeterGerman Chancellor Angela Merkel welcomes Russian President Vladimir Putin to talks.

One in three German companies expect business with Russia to decline sharply this year as a result of economic sanctions imposed due to theUkraine crisis, a German business lobby group said on Tuesday.

Around a third of 300 companies surveyed by the German Chambers of Commerce (DIHK) saw their turnover declining by up to 50 per cent, the German-Russia Foreign Trade Chamber (AHK) said, while nearly two-thirds expected steady or even improved business with Russia.

Germany is Russia’s biggest trading partner in the European Union and sold about 36 billion euros of goods to Russia last year – almost a third of the EU’s total.

Sanctions and the impact on confidence of the crisis in Ukraine were cited by the finance ministry last month as a reason for the surprise economic contraction seen inGermany, the euro zone’s biggest economy, in the second quarter.

“The innovative German machinery makers and engineering companies, mostly medium and small businesses, are being hit the hardest,” said Volker Treier, deputy managing director of the DIHK, at a news conference. He said he expects Germanexports to Russia to fall by about 20 per cent in 2014.

“On the one hand, they are being directly hurt by the sanctions imposed by theEuropean Union or due to lacking clarity about how they should be implemented. On the other hand Russian firms that placed the orders are facing higher financing costs due to a credit crunch and ruble’s devaluation.”

Germany frankfurt stock exchange xetraREUTERS/Kai PfaffenbachGermany’s economy shrank by 0.2 per cent between April and June after growing 0.7 per cent in the first quarter.

But Treier said sanctions have not yet had an impact on many German firms, adding: “It’s still business as usual for many.”

The survey also found that 80 per cent of German companies doing business inRussia believe the sanctions imposed are either not effective or an inappropriate tool for pursuing a political resolution to the crisis.

“We are not convinced that long term goals can be achieved with the sanctions,” said Rainer Seele, president of the German-Russia Foreign Trade Chamber. “But they seem to be a means to get all parties back to the negotiating table.”

One third of the companies said the sanctions were necessary even if they were hurting their own businesses. Two thirds said the sanctions were superfluous.

There are some 6,200 German firms active in Russia with 20 billion euros invested.Russia is Germany’s 11th biggest commercial partner and about 300,000 jobs depend on trade with Russia.

Germany was long reluctant to impose sanctions on Russia after it annexed Crimea in March, in part due to its powerful business lobby. Western nations first targeted Russian President Vladimir Putin’s closest allies and businessmen with sanctions.

They expanded those sanctions, with Germany taking a stronger position on sanctions, in late July to include the energy, banking and defence sectors. Russiahas reacted with restrictions on imports of Western products.

Partly as a result, Europe’s largest economy shrank by 0.2 per cent between April and June after growing 0.7 per cent in the first quarter.

(Additional reporting by Rene Wagner; Writing by Bethan John; Editing by Erik Kirschbaum and Catherine Evans)

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This article originally appeared at Reuters. Copyright 2014. Follow Reuters on Twitter.

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