Faced with an energy crisis, the German economy is bending but not breaking

Berlin (AFP) – Worst-case recession scenarios loom for the German economy, which weathered the winter and energy crisis better than expected but must turn around to secure its future.

Gross domestic product (GDP) growth in 2022 beat expectations, reaching 1.9% despite the “difficult context” of the war in Ukraine and rising prices, the national statistics institute Destatis said on Friday.

Berlin expected growth of 1.4% in 2022 this fall, after 2.6% in 2021.

ING analyst Carsten Brzeski said the first economy in the euro zone “is still defying recession”.

Because according to Destatis’ very preliminary estimates, GDP “stagnant” during the last three months of 2022, avoiding a red shift at this stage.

Resilient consumption, state aid, energy savings in industry… Crisis-ridden Germany is holding firm, even though “total economic losses were as significant as before Russia’s attack on Ukraine, but growth was still going on. it is expected to be twice as high,” said Fritzi Köhler-Geib, economist of KfW bank.

Mild weather

“We managed to control this crisis (…) The winter slowdown will be milder and shorter than expected”, – welcomed Economy Minister Robert Habek.

The government still expects a recession of 0.4% in 2023, but most institutions are less pessimistic.

The energy crisis caused by the war in Ukraine, in particular, has upset the German model based on massive imports of cheap gas from Russia.

The war cut off Russian supplies and caused prices to rise in Europe for part of the year. Inflation rose as manufacturing costs in industry, the engine of Germany’s growth, raised fears of a major economic crisis for the country.

In this context, private consumption, which became the “main pillar” of growth last year, explains that spending has almost returned to its level before the Covid-19 pandemic.

Large government aid to support purchasing power prevented private spending from collapsing when energy and food prices rose.

Jan-Christopher Scherer, an expert at the DIW economic institute, emphasizes that industries have been “creative” to save gas.

According to a study by the IFO institute, “three-quarters” of industries that use gas have reduced their consumption without limiting production.

Energy prices have also fallen in recent months thanks to a mild winter in Europe and Berlin’s efforts to boost LNG supplies.

On the supply side, a gradual improvement in supply chain tensions in global markets has eased the export industry.

“These positive effects partially offset the effects of the war and high energy prices,” says Bjeski.

“The next months will be difficult”

But the crisis is not over. “The next few months will be difficult,” said Oliver Holtemöller, a researcher at the IWH Institute of Economics.

Although gas prices have fallen in recent months in short-term markets, prices will remain structurally above pre-crisis levels for a long time.

Berlin has already launched a €200 billion tariff shield that will curb energy and gas prices in 2023 and 2024. But it won’t be able to compensate for everything, especially if prices rise sharply.

Especially since public accounts show a deficit of 101.5 billion at 2.6% of GDP in 2022, which should reach 3.25% this year.

According to the German Automobile Manufacturers Association (VDA), before the pandemic, the auto sector should still experience sales figures “a quarter lower than in 2019” in 2023.

Experts warn that some energy-intensive industries, such as the chemical industry, may even leave the country. Within a year, in November, production in these sectors was marked by the pandemic, but it has already decreased by 12.9% compared to 2021.

More and more voices are calling for leaving these areas considered uncompetitive in favor of more technological and less energy-intensive industries.

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