In Germany, the economy is bending, but not breaking in the face of the energy crisis

Worst-case recession scenarios loom for the German economy, which weathered the winter and energy crisis better than expected but must turn around to secure its future.

The GDP estimate for 2022 will be published by the German statistics office Destatis at 10:00 a.m. (0900 GMT) on Friday.

Analysts expect growth of 1.8% in 2021, up from 2.6%.

The office will later release its estimates for the final quarter of 2022, which will draw more attention and should end with a contraction, albeit limited, after an unexpected 0.4% increase in the third quarter.

Several economic institutions will engage in the guessing game on Friday for last quarter’s performance. To date, the Bavarian IFO expects only a 0.1% decline in GDP.

Resilient consumption, state aid, energy savings in industry… the first economy in the Eurozone to face the crisis is holding up well, even if certain sectors are still at risk.

– Mild weather –

“It could have been worse,” ING bank analyst Carsten Brzeski told AFP.

The energy crisis caused by the Ukraine war has shaken Germany’s economic model, which relies on massive imports of cheap gas from Russia in particular.

The war cut off Russian supplies and caused prices to rise in Europe for part of the year.

Inflation rose as manufacturing costs in industry, the engine of Germany’s growth, raised fears of a major economic crisis for the country.

“The German economy was stronger than expected this autumn,” Jan-Christopher Scherer, an expert at the DIW Institute of Economics, told AFP.

Scherer says industries have “been creative” to conserve gas. According to the IFO study, “three-quarters” of industries using gas have reduced their consumption without limiting production.

Energy prices, especially gas, have also fallen in recent months thanks to a mild winter in Europe and Berlin’s efforts to increase liquefied natural gas supplies.

Germany then spent heavily to support households, allowing it to maintain the consumption dynamics set in motion in early 2022 by lifting restrictions against the coronavirus pandemic.

On the supply side, a gradual improvement in supply chain tensions in global markets has eased the export industry.

“These positive effects partially offset the effects of the war and high energy prices,” says Bjeski.

The leading economy of the Eurozone should experience a recovery from the second quarter of 2023, according to the forecasts of economic institutions.

– “The next months will be difficult” –

But the crisis is not over. “The next few months will be difficult,” said Oliver Holtemöller, a researcher at the IWH Institute of Economics.

Although gas prices have fallen in recent months in short-term markets, prices will remain structurally above pre-crisis levels for a long time.

Liquid gas, which replaces Russian supplies, is more expensive to produce and transport than pipeline gas.

Berlin has already launched a 200 billion euro tariff shield that will allow energy and gas prices to be locked in 2023 and 2024. But it won’t be able to compensate for everything, especially if prices rise sharply.

The car, a symbolic arm of the German economic model, should still experience sales figures “a quarter lower than the quarter of 2019” before the pandemic next year.

According to experts, some energy-intensive industries, especially the chemical sector, may even leave the country.

“We see long-term risk for the most energy-intensive industries,” says Holtemöller.

Within a year, in November, production in these sectors has already decreased by 12.9% compared to 2021, although it was marked by the coronavirus pandemic.

More and more voices are calling for leaving these areas considered uncompetitive in favor of more technological and less energy-intensive industries.

Michael Grömling of the IW institute in Cologne assures: “(Part of these industries) will certainly change locations, move production areas. But then companies will specialize in other areas.”

One million people work in these sectors (chemical, steel, glass, paper), which consume 76% of the energy used by industry.


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