Recession fears rock Germany as energy sector hits energy costs | economics

“Not pasta then?” The Germans quipped earlier this month, when they heard that of all things, a toilet paper factory had gone bankrupt.

After all, while toilet paper was the second most coveted item in the supermarket during the height of the pandemic, pasta was the first. Consumers are strictly rationed to one or two packs of rolls to ensure no one goes out without them. But after thriving during the pandemic, Düsseldorf’s luxury brand Hakle — known for its “comfort since 1928” with its triple wraps — has exploded as a result of an energy crunch. It is the first large German consumer goods producer to collapse due to rising energy and raw material costs, and there is much to suggest that more will follow.

Last week, the Munich-based Ifo Institute for Economic Research lowered its forecast for German growth, declaring “we are headed into a winter recession.” It forecast Europe’s largest economy to shrink by 0.3% in 2023, having grown by just 1.6% this year. Inflation is expected to reach 8.1% this year and 9.3% in 2023.

“The cuts in gas supplies from Russia this summer and the resulting big price increases have wreaked havoc on the economic recovery in the wake of the coronavirus,” said Timo Wollmershäuser, Ifo’s chief forecasting officer, adding that he did not expect a “return to normal.” Until 2024, when 1.8% growth and 2.4% inflation can be expected.

German Chancellor Olaf Scholz is traveling to the Gulf this weekend to secure LNG supplies from the United Arab Emirates, where Russia is throttling its gas supplies. “Gas supplies are gradually expanding and the government is in permanent talks with many countries, as well as with the countries of the Arabian Peninsula,” Economy Minister Robert Habeck said.

Paper production is energy intensive. Hakle uses 60,000 MWh of gas and 40,000 MWh of electricity each year. The company said the increases in energy costs came too hard and fast, and it was unable to pass them on in time to consumers, who in turn switched to cheaper two-ply toilet roll.

A sign standing in front of the headquarters of Hakle toilet paper factory
Toilet paper maker Hakle has filed for bankruptcy due to rising energy and raw material costs. Photo: Dpa Picture Alliance / Alamy

Company bosses, union leaders, shop owners and employees across the country are openly expressing their fears that a crisis in Europe’s largest economy is at risk of spiraling out of control. They question the apparent optimism of Schultz, who embraced Jerry, and Habeck admitted that “the financial pressure is enormous,” offering faint hope that “if we can get through this winter, we have a good chance that through the next summer and winter things will be considerably more relaxed.” .

in North Hanover GermanyBaker Eckhard Vatter, who has 35 branches and employs 430 people, recently took to the press after his gas bill rose 1,200% to €75,000 (£65,800) a month. “Are they crazy?” said, who took to the streets with about 1,000 other bakers on Wednesday, who carried banners accusing politicians of “steering us into the biggest crisis ever” and calling for urgent state support.

Yasmine Fahimi, president of the German Trade Union Confederation (DGB), said she fears the consequences of several challenges coming at once. “Some companies are on the brink. She tells Spiegel that this threatens a domino effect that could lead to deindustrialization in Germany, which would be a disaster.

She called on the government to protect those companies that are under particular threat, given their high energy use, “to ensure that they can maintain their minimum production capacity, so that when things improve, they can roll on them again. Those who shut up and shop now, never come back.” We need to be clear about that.”

Arcelormittal steel mill, Hamburg
ArcelorMittal steel plants in the ports of Hamburg and Bremen are planning to close “until further notice” due to rising energy costs. Photo: Action Press/Rex/Shutterstock

Several companies have done just that: they have cut production to an absolute minimum or – in the case of the ArcelorMittal steel plants in the ports of Hamburg and Bremen – are planning to close “until further notice”.

The scenario is repeated across Germany, afflicting the most energy-intensive industries – steel, building materials, glass, paper, and chemicals – that form the backbone of the German economy. The “de-industrialization” that Fahimi fears is what could happen if they shut down permanently.

Meanwhile, cheaper energy and production costs elsewhere – gas is 10 times cheaper in the US – are driving some companies to move their manufacturing. But in the case of hundreds of thousands of Mittelstand companies, small to medium-sized, often family-run businesses loyal to a particular location that has been Germany’s main growth engine since World War II – this is hardly an option.

According to the Confederation of German Industries (BDI), 90% of companies refer to the level of energy and raw material costs as a “strong” or “existential” challenge. In the case of ammonia – vital to the agricultural industry for the production of fertilizers – producers such as BASF reduced its production To a minimum they had to buy the chemical from cheaper markets elsewhere in the world.

Volker Young, president of bankrupt toilet paper company Hackley, called for a cap on state-subsidized energy prices, saying, “We can ask the question whether Germany will be able to afford the paper industry again.”

Shoppers in downtown Bonn, Germany
A recent study found German consumer confidence to be at its lowest since 1949. Photo: Ying Tang/NoorPhoto/Rex/Shutterstock

Wolfgang Große Entrup, president of the German Chemical Society (VCI), has warned of the danger of Germany developing new dependencies at a time when it should look to do the opposite.

Another recent survey showed that consumer confidence is at its lowest level since the founding of the Federal Republic of Germany in 1949. Faced with rising energy bills, families are rethinking spending, from vacations to home purchases and meals abroad.

Companies are doing the same, avoiding new investments, and instead holding crisis meetings about how low the heating level is in factories and offices.

Increasing numbers of companies are switching their workers to the “Kurzarbeit” – the short-time work mode – which was first introduced in the 1920s in response to the economic crisis of the Weimar Republic, and was later used extensively during the global financial crisis.

This willingness to hang on to workers is seen as crucial if Germany has a chance of emerging from the current crisis. But the question increasingly arises: how long will she be able to withstand this?

Leave a Comment