The German economy is reeling under the weight of the energy crisis without breaking

The German economy is reeling under the weight of the energy crisis without breaking
The German economy is reeling under the weight of the energy crisis without breaking

The prospect of extreme recession recedes in Germany, as the economy weathers the winter and energy crisis better than expected, but must undergo a transformation to secure its future.

And the National Institute of Statistics “Destatis” announced that the growth of German gross domestic product in 2022 exceeded expectations, recording 1.9%, despite the “difficult environment” resulting from the war in Ukraine and the sharp rise in prices, while the government was counting in the fall on a growth of only 1.4% in 2022. After a growth of 2.6% in 2021.

But the analyst at the banking group “ING”, Carsten Pejeski, warned that the first economy in the eurozone “is still (facing) recession.”

And according to preliminary estimates by the Disstates Institute, the gross domestic product recorded a “stagnation” during the last three months of 2022, which allowed it at the present time to avoid a decline to a negative growth rate.

Between the steadfastness of consumption, government aid, and energy savings in the industrial sector, Germany is still steadfast in the face of the crisis, even if “the total economic losses were, despite everything, huge, as expectations before the Russian attack on Ukraine indicated growth that was about twice as large,” according to the economist. At KFV Bank Frizi Koehler Gabe.

Mild weather

German Economy Minister Robert Habeck said, expressing his satisfaction: “We succeeded in controlling this crisis. The winter slowdown will be milder and shorter than expected. The government still expects a 0.4% contraction in 2023, but most institutes are less pessimistic.

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

The war stopped Russian supplies, which caused a sharp rise in prices in Europe during part of the year, and the inflation rate rose with the increase in production costs in industry, the engine of German growth, which raised fears of a major economic crisis in the country.

Creative sense

In this context, “Destatis” explained that private consumption became the “main pillar” of growth last year, with spending returning to its levels prior to the outbreak of the “Covid-19” epidemic.

The huge aid allocated by the government to support the purchasing power allowed to avoid the collapse of private spending with the sharp rise in energy and food prices.

As for the industries, they demonstrated a “creative sense” in saving gas, according to Jan-Christopher Scherer, an expert at the “DIV” economic institute.

A study prepared by the Institute for Economic Research “EFO” showed that “three quarters” of industries that use gas have reduced their consumption without reducing their production.

Energy prices have also fallen in recent months thanks to mild weather this winter and Berlin’s efforts to increase its supplies of liquefied natural gas.

On the supply side, the gradual easing of pressures on supply chains in global markets has eased pressure on the export industry.

“This positive impact partially compensated for the consequences of the war and high energy prices,” Bejeski stressed.


Tough months


But the crisis did not end, and Oliver Holtmoller, a researcher at the AVH Institute, considered that “the coming months will be difficult.”

However, if gas prices declined in the past months in the short-term contract markets, they will remain for a long period above their levels before the crisis.

Of course, Berlin has allocated 200 billion euros to impose a ceiling on electricity and gas prices, which will allow prices to be frozen in 2023 and 2024, but this measure will not be able to compensate for all the losses, especially if prices suddenly rise again. What reinforces concerns is that public accounts previously recorded a deficit of 101.5 billion euros in 2022, which represents 2.6% of GDP, and is expected to increase to 3.25% this year.

And the German Association of Automotive Manufacturers stated that this sector will again record in 2023 a sales number that is a quarter lower than in 2019, the year before the outbreak of “Covid-19”.

Also, some energy-intensive industries such as chemistry may even leave the country, according to experts’ warnings, after production in these sectors declined by 12.9% in November at an annual rate, after 2019 suffered the consequences of the health crisis.

Increasingly, voices are calling for abandoning these economic branches, which do not have a great competitive ability, and replacing them with more technological industries that consume less energy.

• Between the resilience of consumption, government aid and energy savings in the industrial sector, Germany is still resilient in the face of the crisis even if the overall economic losses were huge.

• The massive aid allocated by the government to support purchasing power has avoided the collapse of private spending with the sharp rise in energy and food prices.

• Industries that have demonstrated a “creative sense” in saving gas, and those that use gas have reduced their consumption without limiting their production.

Possibility of a shortage of gas supplies

Despite the plans and measures taken by the German government to overcome the shortage of natural gas supplies, experts consider that the most decisive factor in this issue is how the next winter will be, which determines the heating behavior of citizens, and thus will determine whether the various supplies of gas, whether they are natural gas Coming from Norway and the Netherlands, or liquefied gas coming from the United States and Australia, as well as sufficient natural gas stocks for civil and industrial consumption during the current winter months, in addition to the extent of their impact on the level of gas tanks and their adequacy for the coming winter 2023-2024. Experts put forward three scenarios:

The first scenario shows that if gas consumption remains as high as the average for the years 2018 to 2021 due to a colder winter, there is a high risk of a gas shortage during the heating period. In the pessimistic version of the scenario, natural gas tanks may be completely empty by the beginning of March.

In the second scenario, which expects a 10% lower reduction in gas consumption than in previous years, Germany has a better chance of surviving the winter without a shortage of gas supplies. This scenario is based on the assumption that the winter will not be very cold.

As for the third scenario, it assumes a 20% saving in gas consumption during the heating season, due to the mild winter season. If this percentage is achieved, there will be no shortage of natural gas during this season, and natural gas tanks will be 50% full at the beginning of March 2023.

However, the biggest challenge will likely be to secure adequate gas supplies in the winter of 2023-2024, as the resumption of gas supplies from Russia is unlikely. The question will be: Where will the gas come from, which must fill storage tanks next summer? How quickly can German industry convert gas-intensive production processes to other energy sources?

Gas market analysts at the International Energy Agency (IEA) say: “It is not possible to expect the availability of gas in Europe or the development of prices,” but it is clear at the present time that new imports of liquid gas to the European Union during the current year will not be able under any circumstances. One of the conditions is to compensate for the decline in Russian gas shipments to Europe, and without compensation for Russian supplies, the European Union countries and Germany will face the risk of rationing gas in the coming winter, which will primarily affect industrial production processes, and thus the possibility of an economic crisis with uncalculated consequences will increase.



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