• A rupture in Russia-Germany trade could have dire macroeconomic effects, S&P Global said.
  • The outcome would be lower growth and employment in Germany, Europe's economic powerhouse.
  • Russia and Germany are key trading partners, with Russia supplying about 50% of Germany's gas.

S&P Global's chief economist Paul Gruenwald said a "trade rupture" between Russia and Germany could have trigger a financial shock on the German economy, as the European Union ponders what steps to take next to up the pressure on Moscow.

"The one that would really move the macro needle is some sort of trade rupture between Russia and Europe," Gruenwald told CNBC's "Squawk Box Asia" on Wednesday. Russia cutting off gas to Germany would not be the only way this would happen. Disruption to other Russian imports into Europe, like metals, would likely play a roll too, Gruenwald added.

"We would need a rupture of a magnitude that would put a serious dent in the German manufacturing complex, and that would feed through to lower GDP, lower employment, lower confidence," he said to CNBC. "And then we would get a macro financial shock out of that."

Germany gets about half of its natural gas from Russia, and is under pressure to ban this due to mounting reports of Russian atrocities in the Ukraine war. Russian President Vladimir Putin has demanded that "hostile countries" make payment in rubles for their natural gas and has threatened to shut off supply to Europe altogether.

The EU gets around 40% of its gas and 30% of its crude oil from Russia. The European Commission unveiled a plan last month to diversify gas supplies to reduce the bloc's reliance on Russian gas by two-thirds before the end of the year. Lithuania became the first EU country to fully ban Russian energy at the start of this month.

Western nations have imposed severe sanctions on Russia following its invasion of Ukraine, but for the most part, its energy exports have been largely unaffected. The US and the UK have said they will ban Russian energy imports, although neither country relies especially heavily on Russia for oil, coal or gas.

Germany however doesn't have many alternative options to fulfil its needs. Deutsche Bank's CEO Christian Sewing said cutting off Russian energy would lead to a "virtually unavoidable" recession in Germany, according to Reuters. Russia has supplied Germany with its gas for almost 50 years.

Due to the war in Ukraine, German banks are already expecting the country's GDP growth to slow to 2% in 2022 from 2.7% in 2021, Sewing said.

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