German business warns rouble plunge will 'affect us all'

[BERLIN] A German business group on Wednesday cautioned against "Schadenfreude" over Russia's currency woes, predicting a 20-per cent drop in German exports to the country this year and the risk of worse to come.

The rouble's sharp drop would further damage trade, already hurt by Western sanctions amid the Ukraine crisis, and slash revenues of foreign companies operating in Russia, said Eckhard Cordes, head of industry group the Committee on Eastern European Economic Relations.

"I generally cautioned against Schadenfreude", or the pleasure at another's misfortune, Mr Cordes told business daily the Handelsblatt.

"A destabilisation of Russia in the end isn't in anyone's interest, we would all be affected.

"At the moment we expect a 20-per cent fall of German exports to Russia in 2014. But if the current situation continues, we could experience a bigger fall."

The rouble this week slumped to record lows against the dollar and the euro, losing around 60 per cent of its value since the beginning of the year, due to plunging oil prices and Western sanctions over Ukraine.

It has recovered somewhat as the finance ministry has sold foreign currency to prop up the rouble.

Mr Cordes, former head of German retail chain Metro, said that German companies producing in Russia, especially in the automotive and machine tool sectors, already face a tough choice as the cost of importing components has risen sharply.

"Either they keep producing and see their margins shrink, or they raise prices and face a collapse in demand," he said.

The German Chambers of Industry and Commerce also warned its members would be hit by the "dramatic drop in purchasing power" of Russians and said the trade and investment outlook was cloudy.

"German car factories have for weeks now cut working hours and are laying off employees," its foreign trade economist, Volker Treier, told the Neue Osnabruecker Zeitung daily.

He pointed to a shopping spree in Russia as people are trying to offload money that is losing value but added that "this development will be limited once savings are used up".

AFP