The German economy is regressing under the weight of the energy crisis without being broken

Germany is facing extreme recessionary odds, as the economy is weathering the winter and energy crisis better than expected, but must undergo a transformation to secure its future.

And the National Institute of Statistics “Distatis” announced on Friday that the growth of German gross domestic product in 2022 exceeded expectations, recording 1.9%, despite the “difficult environment” resulting from the war in Ukraine and the sharp rise in prices.

In the fall, the government was counting on a growth of only 1.4% in 2022 after a growth of 2.6% in 2021. However, an analyst at the banking group “ING” Carsten Pejeski warned that the first economy in the euro area “is still (facing ) recession”.

According to preliminary estimates by the Disstates Institute, the gross domestic product (GDP) recorded a “stagnation” during the last three months of 2022, which allowed it at the present time to avoid a decline to a negative growth rate.

Between the steadfastness of consumption, government aid, and energy savings in the industrial sector, Germany is still steadfast in the face of the crisis, even if “the total economic losses were, despite everything, huge, as expectations before the Russian attack on Ukraine indicated growth that was about twice as large,” as the economist explained. At KFV Bank Frizi Koehler Gabe.

Mild weather

“We succeeded in controlling this crisis… the winter slowdown will be milder and shorter than expected,” said Economy Minister Robert Habeck, expressing his satisfaction. The government still expects a 0.4% contraction in 2023, but most institutes are less pessimistic.

The energy crisis caused by the war in Ukraine has shaken the German economic model, which relies in particular on massive imports of cheap gas from Russia.

The war cut off Russian supplies, causing prices to skyrocket in Europe for part of the year. And the rate of inflation rose with the increase in production costs in industry, the engine of German growth, which raised fears of a major economic crisis in the country.

In this context, Destatis said private consumption became the “mainstay” of growth last year, with spending returning to pre-COVID-19 levels.

The huge aid allocated by the government to support purchasing power has avoided the collapse of private spending with the sharp rise in energy and food prices. As for the industries, they demonstrated a “creative sense” in saving gas, according to Jan Christopher Scherer, an expert at the “DIV” economic institute.

A study prepared by the Institute for Economic Research “EFO” showed that “three-quarters” of industries that use gas have reduced their consumption without reducing their production. Energy prices have also fallen in recent months thanks to mild weather this winter and Berlin’s efforts to increase its supplies of liquefied natural gas.

On the supply side, the gradual easing of pressures on supply chains in global markets has relieved pressure on the export industry. “This positive impact partially compensated for the consequences of the war and high energy prices,” Bejeski said.

Difficult months ahead

However, the crisis did not end, and Oliver Holtmoller, a researcher at the AVH Institute, said that “the coming months will be difficult.” However, if gas prices declined in the past months in the short-term contracts markets, they will remain for a long time higher than their levels before the crisis.

Of course, Berlin has allocated 200 billion euros to impose a ceiling on electricity and gas prices that will allow prices to be frozen in 2023 and 2024, but this measure will not be able to compensate for all the losses, especially if prices suddenly rise again.

What reinforces concerns is that public accounts previously recorded a deficit of 101.5 billion euros in 2022, which represents 2.6% of GDP, and is expected to increase to 3.25% this year.

And the German Association of Automotive Manufacturers stated that this sector will again record in 2023 a sales number “a quarter lower than in 2019” the year before the outbreak of Covid.

Also, some energy-intensive industries such as chemistry may even leave the country, according to experts’ warnings, after production in these sectors declined by 12.9% in November at an annual rate, after 2019 suffered the consequences of the health crisis.

Increasingly, voices are calling for the abandonment of these economic branches, which do not have a great competitive ability, and their replacement by more technological industries that consume less energy.