Skies darken over German economy as energy crisis sets in

Skies darkened over the German economy on Friday as its flagship auto and chemical industries reported bleak prospects and companies cut output to save energy.

The gas-dependent pharmaceutical sector has sharply reduced its production plans and is under “considerable pressure” due to fallout from the war in Ukraine, experts from the Ifo Institute for Economic Research have said.

Confidence in the industry has fallen to its lowest level since 1991, a year after German reunification, as the growing energy crisis has dramatically worsened the economic situation.

Meanwhile, automakers are increasingly reluctant to hire staff as the business climate deteriorates, and companies believe the situation has ‘worsened significantly’ over the past month, a survey has found. .

“The general darkening of the mood in the economy is also reflected in the automotive sector, with suppliers much more pessimistic than manufacturers,” said Oliver Falck of the Ifo institute.

Business pessimism comes amid rising energy prices and concerns over whether Germany will have enough gas to last through the winter after Russia cut exports.

Figures released by power grid regulators on Thursday showed industrial gas consumption fell 19%, year-on-year, in Europe’s biggest economy.

Although Germans are encouraged to save gas for the winter, industrial cuts are seen as a double-edged sword in Berlin as they suggest production is being slowed down or halted altogether.

“It helps, but it’s not good news,” Economy Minister Robert Habeck said after a cabinet meeting this week. “The era of cheap gas prices…will not return soon, perhaps ever.”

Germany’s automotive and chemical industries are the largest in Europe, are among the largest exporters in the world, and employ hundreds of thousands of people.

Another German flagship, Lufthansa, had to cancel hundreds of flights on Friday as pilots went on strike demanding higher pay rises.

Mr Habeck had good news to report after the level of gas storage in Germany reached 83%, beating the 75% target for the start of the autumn.

However, the industry is asking for more support to deal with runaway prices after a failed attempt to redistribute costs left few people satisfied.

“Energy costs are exploding, the competitiveness of our export industry is at stake,” said Wolfgang Entrup, head of a German chemical industry lobby group.

Chancellor Olaf Scholz’s cabinet this week agreed on a measure to make it easier for the gas industry to switch to alternative fuels, a process that will now be passed more quickly by regulators.

Ministers are also working on a new support package for Germans, but there has been renewed frustration after Finance Minister Christian Lindner revealed it would take 18 months to arrange payments to every household.

It’s because the government doesn’t have people’s bank details. Collecting them and matching them to tax records is a long process, and government computer systems can only process 100,000 transfers a day, he said.

“It’s not as simple as the coalition making a decision, the money being in the budget and us pressing a button,” said Mr Lindner, who has long lamented the pen-and-paper nature of Germany’s bureaucracy.

German airline Lufthansa suspended most flights from Frankfurt Airport on Friday due to a strike by pilots demanding a pay rise.  Bloomberg

One of the most popular relief measures, a €9 ($9) monthly pass for any local or regional train in Germany, expired on Thursday after a split coalition could not agree on a replacement .

Regulators have been in talks with industry about possible controlled outages if power becomes too scarce.

Russian gas exporter Gazprom cut supplies through the main gas pipeline to Germany, Nord Stream 1, by around 20% in July for what is seen in Berlin as bogus technical reasons.

They came to a complete halt on Wednesday for what Gazprom said was necessary maintenance, and Germany is preparing for Russia to completely turn off the tap.

Mr Habeck ordered a fifth floating gas terminal on Thursday to boost Germany’s ability to buy fossil fuels from other suppliers, although it will not be ready this winter.

Longer-term deals have been signed with Canada, Qatar and others as Germany tries to break free from dependence on Russian energy by mid-2024.

Germany’s central bank predicted in June that the economy would grow moderately by 1.9% this year, but that there could be a “steep decline” in 2023 if supplies from Russia stop.

An Infratest Dimap survey released on Thursday showed that 53% of Germans said they support keeping pressure on Russia even if it leads to higher prices at home.

However, that figure was down from 66% in March, and the poll showed a sharp drop in popularity for Mr. Scholz and Mr. Habeck, compared to a month ago.

Updated: September 02, 2022, 09:41

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