Deutsche Bank: 'Gas crisis is game changer for German industry'

15 July 2022
Today at
09:10

–

The protracted energy crisis is questioning Germany’s location as the industrial heart of Europe, Deutsche Bank writes. The bank predicts a prolonged recession.

–

‘Moving into recession’, that is the title of Deutsche Bank’s voluminous report on its home country Germany, which leaves little to the imagination. Chief economist Stefan Schneider predicts that the economic consequences of the raging gas crisis will push Europe’s largest economy under head in the second half of the year. Germany is heavily dependent on Russian gas for his supplies.

–

For the time being, Schneider and his colleagues do not assume that Russia will turn off the gas tap completely. But they are considering a scenario in which supplies will be cut even more as Moscow has already systematically cut deliveries in the past month.

–

The high prices that result will put both German companies and Otto Normalverbraucher – the German Jan Modaal – into saving mode, it says. Combined with a cooling economy in the United States, this will cause the German economy to shrink in the second half of the year, according to Deutsche Bank.

–

Because Germany is already preparing for this, the bank sees the impact limited to a contraction of 1 percent in 2023. It does point out that if the tap is closed completely, that contraction would immediately jump to 5 to 6 percent.

–

What is striking is that it would not be a short stalemate, as was the case with the oil crisis of the 1970s. It hit the world economy unexpectedly and hard, but was soon resolved.

–

The gas crisis today is different, economists point out. As we move towards an economic decoupling from Russia and its cheap gas, we as a continent are being pushed into an energy transition that will last for years. During that period, prices will remain high, which will weigh on the economy for a long time, Schneider fears.

–

Location Germany

That drawn-out economic pain is closely linked to the fate of all-important German industry. In recent years, it has benefited from the cheap Russian gas that flowed freely. BASF CEO Martin Brudermüller called Russian gas ‘the basis of our industry’s competitiveness’ in April.

–

Now that that basis is gradually disappearing, the German industry has big headaches. Deutsche Bank predicts a 1 percent contraction in industrial production in 2022, and a stagnation next year. But – more importantly – economists see the gas crisis as a structural ‘game changer’ for ‘Standort Deutschland’, the term German politicians like to use for Germany’s position as an economic location.

–

Vertical integration

The economists point out that German industry is vertically integrated, from the production of basic raw materials to the production of finished goods for global customers. But the high energy prices are putting enormous pressure on energy-intensive companies at the beginning of that value chain – such as basic chemicals or metal production.

–

New investments are more likely to flow to countries with lower energy costs.

Stephen Schneider

Economist Deutsche Bank

–
–

–

‘Those sectors have long benefited from cheap Russian gas. The switch that is now being made from cheap gas to more expensive LNG is putting even more pressure on their competitiveness, while they are already struggling to raise capital,’ it reads.

–

“New investment is more likely to flow to countries with lower energy costs,” says Schneider. “And if parts of the industrial value chain weaken, the entire economic system is compromised.”

–

Deutsche Bank points out that the situation is also making the greening of the industry more difficult. ‘The steel industry, for example, wants to make the switch from coal to hydrogen. But that transformation requires huge investments. The intention is for gas to bridge the gap to the moment when green hydrogen becomes available and affordable. That transition has now become a lot more expensive.’

–

[PHOTOS] Another large mobilization against the pension reform

Strong increase in corona patients in hospitals, further increase expected | NOW

"The Entrepreneurial Mission: Managing Profit and Growth with KALTEA"

Insurance: end of the green sticker on the windshield from April 1, 2024

Deutsche Bank: ‘Gas crisis is game changer for German industry’

Location Germany

Vertical integration

Related posts:

Leave a Comment Cancel reply