Christian Sewing, the CEO of Deutsche Bank, urged Germany’s leaders on Wednesday to quicken the country’s decoupling from China and issued a dire warning that a recession is imminent.

Sewing stated in a speech at the Handelsblatt Banking Summit in Frankfurt that Russia’s war in Ukraine had “destroyed a number of certainties” that had been the foundation of the international economic system for the previous few decades.

He identified a number of factors that contribute to the record-high inflation rate in the euro zone, including a labor market bottleneck, a lack of gas and electricity, and major geopolitical tensions that aren’t likely to ease anytime soon and have disrupted global value and supply chains.

“As a result, we will no longer be able to avert a recession in Germany. Yet we believe that our economy is resilient enough to cope well with this recession — provided the central banks act quickly and decisively now,” Sewing said, according to a translated transcript.

In order to cover rising energy costs for the time being, he continued, many people still have pandemic savings to rely on, and the majority of businesses are still “sufficiently financed.”

“But the longer inflation remains high, the greater the strain and the higher the potential for social conflict,” he said.

While producer price inflation soared to a record high in July, the German economy remained stagnant in the second quarter. The “zero-Covid” policy of China, reduced gas supplies from Russia, rising energy and other good prices, and ongoing supply chain disruptions were all mentioned by the German finance ministry.

The European Union has been forced to speed up efforts to reduce its reliance on Russian energy and raw material imports as a result of Russia’s war in Ukraine, and according to Sewing, the invasion has highlighted the risks of becoming overly dependent on specific nations and regions.

“When it comes to dependencies, we also have to face the awkward question of how to deal with China. Its increasing isolation and growing tensions, especially between China and the United States, pose a considerable risk for Germany,” Sewing said, adding that China had become a “cornerstone” of the German economy.

Over one-tenth of the total sale revenues of firms  listed on the country’s DAX stock index are generated from China, he noted, and added that the pandemic made clear how heavily German supply chains depend on Russia. China accounts for about 8 per cent  of German exports and 12 per cent of German imports.

“Reducing this dependency will require a change no less fundamental than decoupling from Russian energy,” he said.

(Adapted from Reuters.com)

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