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The Russian war of aggression shows how fragile the foundations of peace and security are, as well as our prosperity in Europe. The war in Ukraine, started by Russia, and its effects have hit Germany's economy and the European Economic Area as a second major shock following the coronavirus pandemic. For our study "The Economic Impact of the Russia-Ukraine War", we surveyed 280 German companies that have business relations with Russia and/or Ukraine. We wanted to know what impact the war is having on their business, what influence the sanctions imposed on Russia are having and how they are reacting to current events. 

Compliance with sanctions seen as the biggest challenge

Above all, identifying affected business partners, product groups and services and complying with import and export controls are seen by the companies surveyed as the greatest challenges posed by the war. At 64 percent, this issue was the most frequently cited as problematic by the companies surveyed.

Failure to comply with sanctions regulations could result in significant criminal penalties for companies and management.

In the study, our experts explain how companies should respond to the sanctions.

Rising prices and disrupted supply chains demand realignment

Due to the start of the war and the sanctions imposed, direct supply chains with Russia and Ukraine, but also supply chains via Russia to Asia, have broken down. As a result, prices for many raw materials, energy, intermediate products and transportation services have increased significantly. Fuel prices, for example, have doubled and the price of gas has tripled. Prices are also expected to rise further in the medium term.

For this reason, companies are now required to identify potential savings and prioritise digitization projects.

It is very difficult for companies to assess the consequences of the war. This should be reason enough to evaluate risk management strategies, methods and processes in order to manage uncertainties as efficiently as possible.

Mattias Schmelzer, Member of the Managing Board, CMO

"Even more severe than the direct consequences of the war for companies operating with and in Russia and Ukraine are the indirect consequences for the entire German economy," says Mattias Schmelzer, CMO at KPMG in Germany. "The supply bottlenecks and rising purchase prices affect almost every industry and company due to multi-level supply chains."

Prepare for various scenarios such as oil and gas interruptions

  

The realisation that the risk of geopolitical disruptions has grown is becoming increasingly evident and is forcing the German economy's business models to adjust. The cornerstones of the new business model will include the localisation of the entire value chain in all target markets, the establishment of redundant supply structures and buffer stocks, and the diversification of global sales and procurement markets.

Andreas Glunz, Managing Partner International Business

Andreas Glunz, Managing Partner of International Business at KPMG Germany, warns: "The picture is likely to darken again considerably if far-reaching sanctions on Russian oil and gas are imposed or Russia possibly also stops deliveries in this regard. The consequences of extending the sanctions to China would be completely incalculable, should China undermine Western sanctions or even supply weapons to Russia. The task now is to prepare for further scenarios."

Russia-Ukraine war negatively impacts business performance of many companies

Our survey-based study shows that the war is causing a great deal of uncertainty in many companies, with 41 percent still unable to assess the impact on their business. As a result of the war in Ukraine, 46 percent expect a drop in sales and 47 percent a drop in earnings. In addition, 80 percent assume that the Ukraine war will negatively impact their company for longer than a year. Forty percent fear negative effects lasting longer than three years.