How is the economy in East Germany?
What the latest Ifo report says about the state of the economy in East Germany. The article by Pierluigi Mennitti from Berlin
Difficult moment for the economy of East Germany, even if the consequences of the energy crisis unleashed by the Russian attack on Ukraine are mitigated by massive state intervention. This is the general picture of the estimates presented on Christmas days by the Ifo Institute of Munich, which twice a year carefully monitors the economic trend in the so-called new Länder, the eastern regions of Germany on which it still weighs, more than thirty years, the legacy of the communist system.
In the winter semester, the researchers of the prestigious Bavarian institute predict a slight recession, with economic output which in 2023 will be 0.2% lower than the previous year. The Ifo dedicates an even more specific look to the most industrially advanced Land of the region, Saxony, for which a situation of complete stalemate is foreseen, therefore hardly better than that of the other Länder. For a national reference, the Ifo forecast figure for 2023 for the whole of Germany is -0.1%. For the current year, on the other hand, an increase in economic output of 2.1% is expected in all the new Länder and 1.7% in Saxony alone (German overall figure: +1.8%).
“The year that is coming to a close was characterized by a large number of bottlenecks, for example in energy and many intermediate products,” explained Joachim Ragnitz, economic expert at the Ifo's Dresden office, “this has put pressure on production in industry, particularly in the construction sector”.
Saxony is the eastern Land that suffers the most, due to its economic structure based on industry, added Ragnitz, and that's why its figure turned out to be even less brilliant than the other regions in the end. At the same time, household consumption spending continued to grow significantly, and service companies recorded high growth rates. This countered the negative influences from the international environment.
In the end, the post-pandemic recovery was robust, especially on the consumption and services side, and managed to partially offset the Great Depression caused by energy shocks. If there hadn't been the war in Ukraine, in the eastern Länder as in the rest of Germany and Europe we would have witnessed that lasting boom that the post-pandemic forecasts gave us hope for. the fact that the infections have been contained with the arrival of autumn and winter and that it is possible to concretely imagine the gradual exit from the shadow cone of the pandemic still leaves some glimmers of optimism, at least for those slightly less affected by the energy crisis.
Even on this last front, however, the prospects today are less gloomy than a few months ago, although it is now clear that the season of cheap energy thanks to cheap gas from Russia belongs to the past. "In the coming year, energy prices for consumers are no longer expected to increase so strongly, but the price level will remain high and reduce disposable incomes," Ragnitz explained. This will inevitably also affect service providers, however “East Germany and Saxony appear to have come out of the crisis relatively lightly, mainly thanks to a once again positive development in industry. In the second half of 2023, the economy should grow again".
Overall, the labor market is not expected to deteriorate despite the difficult economic environment. In the East German Länder, the Munich institute forecasts an increase in the workforce of +0.8% for the year ending (in Saxony a more modest +0.1%). Next year, however, a decline of 0.6% in the whole region and 0.1% in Saxony is expected.
Also noteworthy are the latest news on the energy front, and in particular on that of the PCK Schwedt refineries in Brandenburg and Leuna in Saxony-Anhalt. With the launch of the EU embargo on Russian oil from 1 January, which Germany intends to observe, it will be necessary to draw on other sources. This concerns Schwedt more, which compared to Leuna is for geographical reasons much more dependent on Russian supplies through the Druzhba pipeline. Ralf Schairer, managing director of PCK, assured that the Schwedt plants will continue to produce even after January 1, 2023, but probably not to the same extent as before. The company's storage facilities are full, thanks to oil arriving via a pipeline from the German port of Rostock, on the Baltic, Schairer explained, and a connection from the Polish port of Gdansk has also been activated for a few weeks.
However, there will not be enough oil to produce the same amount of petrol, diesel and paraffin as has been produced up to now. Germany and Poland recently signed a joint declaration with the aim of guaranteeing the operation of their refineries and the supply of sufficient quantities of crude oil. Furthermore, the German government has finalized an agreement with Kazakhstan for supplies that are currently limited, but with the aim of broadening the agreement. But it will take time and for a while the plants of Leuna but above all of PCK Schwedt will have to travel at a reduced pace.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-germania-est-ifo/ on Wed, 28 Dec 2022 07:14:56 +0000.