Here’s how and why gas will implode Germany’s economy
What do research institutes in Germany estimate on the German economy after the rise in energy prices and less gas from Russia. Pierluigi Mennitti's article from Berlin
The gas market crisis weighs on the German economy and pushes Europe's leading economy into recession. The main research institutes of Germany presented the autumn estimates of the GDP for 2022 and for the two years to come and the numbers tell what the IFO, the economic center of Munich, defines in no uncertain terms "a loss of the well-being of the country ".
The sharp rise in gas prices is drastically increasing energy costs and is accompanied by a massive reduction in purchasing power for the economy as a whole. Despite a decline in the second half of the current year, GDP should expand by 1.4% in 2022, thus maintaining a positive, albeit very low, sign. A sign that the geopolitical and energy crisis has eaten up almost all of the robust post-pandemic rebound of the first few months. For the next year, the institutions expect GDP to decline by 0.4% on an annual average, and then increase by 1.9% in 2024.
German analysts therefore used the ax compared to last spring's forecasts. For the next year, for example, the estimates have been reduced from 3.1% to -0.4%. "This review shows the extent of the energy crisis," they write in the accompanying note. Economic production for the current year and the following year will be 160 billion euros lower, again compared to what was expected in the spring. The inflation rate is likely to increase further in the coming months: for 2023 it is estimated at 8.8%, slightly higher than the current year which will be 8.4%. Only in 2024 will the 2% threshold gradually be reached again.
“The reason for the deterioration of the economic outlook is mainly to be found in the reduction of gas supplies from Russia”, is explained in the note from the research institutes. “With them, a significant part of the gas supply has been lost and the risk that the remaining supply and storage volumes will not be sufficient to meet demand in winter has increased”.
Against this backdrop , gas prices skyrocketed during the summer months. Companies have already started to significantly reduce their consumption, but in many cases they have to resort to a slowdown in production.
In terms of supply, even if the researchers do not foresee a gas shortage for the next winter under normal climatic conditions, the supply situation remains “extremely tense”. And even if the situation should ease somewhat in the medium term, “gas prices are likely to remain significantly above pre-crisis levels”. This means "a permanent loss of prosperity for Germany".
Interesting is what is happening on the employment side, which for some time has been affected by structural factors also linked to demography. There is indeed a stabilizing effect on the labor market. Although the demand for new workers is set to decline due to the economic crisis, companies will not be able to hire new staff due to a lack of skilled labor. And therefore, due to this shortage in many sectors, companies will try to keep existing staff: according to estimates by research institutes, employment is likely to decline only temporarily.
The comments confirm and explain the forecast data. "The Russian attack on Ukraine and the resulting crisis in the energy markets will lead to a significant collapse of the German economy," said Torsten Schmidt, head of economic research at the Leibniz Institut für Wirtschaftsforschung (RWI) and spokesperson for the group of centers. research that elaborates economic forecasts. “High energy and food prices, which are likely to rise further over the next year, are causing significant losses in purchasing power. Both low-income families and businesses therefore depend on further political support ”.
For economists, in the case of companies, however, "care must be taken to avoid permanent subsidies". "At least the labor market is showing signs of stability", concluded Schmidt, "due to the lack of personnel in many sectors, an increase in unemployment is not to be expected despite the economic crisis".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/ecco-come-e-perche-il-gas-fara-implodere-leconomia-della-germania/ on Thu, 29 Sep 2022 08:38:59 +0000.