Regional economy suffers damper in the face of war in Ukraine
by Ilse Romahn
(09.05.2022) “The sustainable recovery of the regional economy that was hoped for at the beginning of the year has not materialized for the time being. In view of the effects of the war in Ukraine, the local economy is proving to be somewhat more robust than other regions in Germany, but is still suffering a severe setback.
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The current business situation is still rated as comparatively good by the companies. Above all, it is the expectations for the coming months that are slipping into negative territory,” said Ulrich Caspar, President of the Frankfurt am Main Chamber of Industry and Commerce, on the occasion of the publication of the results of the current economic survey.
The IHK business climate index – which combines the situation and expectations – fell by twelve to 101 points in early summer 2022 compared to the previous survey. For comparison: In early summer 2020, the business climate index fell from a comparable starting level to 66 points due to the corona pandemic. The balance of the business situation falls by six to twelve points and shows an overall still positive picture of the current situation. The expectation balance, on the other hand, falls significantly by 18 to minus nine points.
With the exception of the hospitality industry, the business climate index is falling in all sectors considered. However, the hospitality industry is coming from a historic low and is benefiting in particular from the recently lifted corona restrictions. However, a business climate index of 82 points indicates that the overall market environment is still negative. Among the other sectors, the impact of the war hits industry and construction the most. While they were important anchors of stability during the corona pandemic, they are confronted with enormous challenges due to the worsening supply chain problems and rising energy and raw material prices. The business climate index fell from 131 to 96 in industry and from 105 to 90 in construction. Trading is also losing (minus twelve points) and is currently at 84 points. Service providers are providing positive impetus for the economy as a whole. It is true that a decline can also be observed among them. However, this is not nearly as strong as in industry, for example, and the business climate index achieved is still slightly positive at 107 points.
The factors of uncertainty for further economic development are manifold. Some of them – like the problems in the international supply chains – are being exacerbated by the war in Ukraine. This becomes apparent when looking at the business risks mentioned by the companies. 59 percent of companies see the greatest risk in rising energy and raw material prices. The economic policy framework and the shortage of skilled workers represent a risk for about every second company (53 and 50 percent respectively). A lower domestic demand concerns 45 percent of the companies. Due to the restrictions during the corona pandemic, it was the top risk in addition to the economic policy framework. Under the impression of high inflation, labor costs are rising relatively sharply as a risk. While they were still 24 percent in the previous year, they are currently at 36 percent, an all-time high since the survey was first carried out in 2010.
“The challenges for the regional economy are already high. A gas embargo would hit energy-intensive industry in particular. Sub-sectors – such as the chemical industry – belong to the primary industry. They create preliminary products and thus the prerequisite for entire value chains. An interruption would have serious consequences for the business location. The service sector will then find it difficult to escape the chain reaction that will be triggered as a result. A recession would be very likely,” concluded Caspar.
Background: The IHK Frankfurt am Main surveys around 3,000 member companies in the Hochtaunus and Main-Taunus districts and in the city of Frankfurt am Main three times a year about the current situation and their expectations with regard to economic development. The current survey was conducted from April 19 to May 5, 2022. Further results, also from the individual sectors, will be explained in the economic report of the IHK Frankfurt am Main, which will be published in mid-May 2022.
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