Where the energy crisis will hurt the most in Germany
What do the estimates on East German economic growth say. And because the region is more exposed to the energy crisis. Pierluigi Mennitti's article
It all depends on how the energy crisis will evolve. However, despite the economic turmoil of recent months, the growth prospects for the eastern regions of Germany remain encouraging. This is the forecast that emerges from the economic growth estimates for the East German Länder that the Ifo Institute in Munich produces twice a year.
The summer ones just presented foresee a 2.9% GDP growth for the current year, compared to the 2.5% estimated for the whole of Germany. Then it will depend on what happens on the energy market. This is not a marginal question mark, especially since the territories east of the Elbe are more exposed to both Western embargoes and Russian retaliation.
Already the European embargo on oil, which will be triggered at the beginning of next year, creates enormous concern. Two Länder in particular, Berlin and Brandenburg, depend for essential supplies (heating, public transport and private mobility, businesses) on the operation of the PCK refinery in Schwedt, which has been at the center of press and political interest in recent weeks. Still owned by the Russian Rosneft, the plant uses only crude oil from Moscow and any negotiations with the Russian company do not seem to reach solutions. The options on the table of the Minister of Economy Robert Habeck are different (and go as far as expropriation for reasons of energy security), but the tangle of knots to be solved gives the idea of how much uncertainty there is in economic forecasts that are pushed beyond next winter.
In a situation of serious energy crisis, it would be precisely the eastern regions to suffer the greatest penalties, for geographical and infrastructural reasons. All the assessments of the experts converge on this. And if the reductions in gas supplies from Russia were to pass to a real block – explain the IFO researchers – the rationing of flows to industry from next spring (i.e. from the end of the heating period) would result in a sharp decline. of production.
The Ifo estimates for 2023 do not currently foresee such a scenario: "It is difficult to quantify these effects from today's perspective", they explain from Monaco, "but assuming that a shortage of natural gas can be avoided next winter, in 2023 the economic production of East Germany will exceed the level of the previous year by 3.5% ”. Just below the national estimate which is expected at + 3.7%.
The overall positive picture for the current year, however, is jagged when observed closely. On the one hand, there is a strong recovery in the consumer-related services sector, due to the spill of Covid from the long winter (and despite the numbers of summer infections is growing and far from reassuring, but now people have learned to live with it ). in particular, there is a real boom in tourism, which benefits not only the big cities of the east such as Berlin, Dresden and Leipzig, but also the coastal areas of the Baltic and the natural ones of Thuringia and Brandenburg.
On the other hand, there is a slowdown in industry and construction, here in line with national trends, due to energy costs and the shortage of raw materials due to difficulties in supply chains.
Over the course of the year, some negative factors are expected to subside. "We expect the current pressures on economic activity to subside over the remainder of the forecast period," said Joachim Ragnitz, director of the Ifo's Dresden office responsible for forecasts for East Germany, "therefore, it is likely that the rate of inflation will start to decrease again in the coming months, also due to the announced increases in interest rates by the European Central Bank ”.
The IFO also estimates a decline in the cost of energy as Europe becomes increasingly independent of Russian supplies. The prolonged closure of Shanghai, caused by the resurgence of Covid, has been revoked, so purchases of intermediate goods from China should also normalize in the future. "On the basis of these assumptions, East German industry should be able to record strong new growth next year, which will especially benefit Saxony," concluded Ragnitz, "while for the service sector we expect normalization. ".
Another IFO research, published just a couple of days before the growth estimates, instead extinguishes the enthusiasm for one of the long-term measures that the German government, on the basis of past ones, intends to adopt to revitalize depressed areas of the east of the country: the establishment of public institutions.
“The establishment of public authorities is suitable for revitalizing structurally weak regions only to a limited extent”, is the result of this study, “because they rarely attract new workers capable of triggering further economic impulses. However, they create jobs for the population that already lives in that region ”.
It is also Ragnitz who details the survey results: “Structurally weak regions are often not attractive enough to attract new workers. At the same time, highly skilled workers are often lacking ”. Field research shows that in some cases the employees of the authorities live in large cities nearby or commute from old locations and in this case the economic impulses hoped for in the weak areas do not materialize.
“If a public authority transfer is to be successful, soft location factors need to be improved,” concludes Ragnitz. These include: job opportunities for family members, permanent contracts, good transport links and broadband Internet. Also important are good educational facilities, a wide range of recreational opportunities and adequate housing. In short, investments must be at least large and far-reaching to produce long-term effects.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/germania-est-economia-2022-2023/ on Sun, 03 Jul 2022 06:00:38 +0000.