High costs and shortages are pushing German industry to the brink 2022-04-28 07:38:25


“There’s never been anything like this before,” George Gayer, the company’s managing director, told CNN Business.

The main difference between the past and the present? Customer demand is high, but Siempelkamp either can’t find or can’t afford supplies of iron and nickel and the energy you need.

These companies are a vital part of the “Mittelstand”, the 2.6 million small and medium-sized businesses that account for more than half of Germany’s economic output and about two-thirds of the country’s jobs. Many are family owned and deeply integrated into rural communities.

Simplecamp foundry consumes enough energy each year to power a town of 20,000 people. For years, the company has paid between €40 ($43) and €50 ($53) per megawatt-hour of electricity. But her bills soared around September and “exploded” to all-time highs after that Russia invaded UkraineJayer said. Prices in March averaged around 250 euros ($267) per megawatt-hour.

“We knew [of our energy costs] Almost every day, Gayer said. “When we wake up we go out.”

caught the war global inflation, which began accelerating last year as economies reopened after pandemic lockdowns, causing increased demand for energy and goods. Now, Western sanctions against Russia Coal and oil exports and the efforts of the European Union Pieces consumption of its natural gas – pushed prices up again. Sanctions against Russia, a major exporter of the mineral, have further scrambled supply chains.

Europe’s largest economy is particularly at risk. According to the International Energy Agency, Germany relied on Russia for about 46% of its natural gas consumption in 2020. That number is likely to have fallen since the war began, but any sudden interruption of imports from Russia would be “disastrous” for manufacturers, Geyer said as Simplecamp.

Rising prices

So far, Siempelkamp has not reduced production, but it passes on the remarkable cost increases for its customers, such as the copper and cement producers who use their mills, and the electric car makers who use their machines. In turn, it expects its customers to pass on costs to consumers.

German annual Product price inflation – This is the price of goods out of factories – it exceeded 30% in March, the highest level in 73 years.
Prices at the factory gate feed on the consumer Price inflation, which hit a Highest level in 41 years 7.3% last month. In both cases, higher energy prices were the biggest contributor. There was no relief in April, as consumer prices rose 7.4% compared to the same month last year, according to a preliminary estimate.

In Berlin, the ice cream maker is also feeling the pressure.

Florida Eis is partially insulated from high prices — it’s diverted much of the energy it uses for production and delivery to renewables — but its suppliers are not. The company now pays between 30% and 40% more for its milk.

Its owner, Olaf Hawn, shivering at the thought of losing Russian gas.

“The sugar industry needs a huge amount of energy. If they don’t have gas, there won’t be raw sugar anymore,” Hoon said. “We cannot buy raw sugar from the global market due to EU regulations.”

“We will make massive cuts until we reach a complete impasse,” he added.

Ice cream boxes are photographed on a conveyor belt for Florida Eis ice cream factory in Berlin, Germany, in July 2015.

High prices rocked a country that had long prided itself on its stable economy, and still harbored a deep fear of the kind of hyperinflation of the 1920s and 1930s, which is widely believed to have helped the Nazi Party come to power.

Dirk Howe, managing director of Simplecamp, wonders how long all of this can go on.

“We’re kind of in a whirlpool right now,” he told CNN Business.

Germany is relatively tasty Cheap and reliable Russian energy Tamas Fonio, associate professor of economic history at Bocconi University, said it has long had a competitive advantage, and helped it weather past economic crises.

This feature is now a liability.

European Union leaders Pledge to reduce consumption of Russian gas by 66% before the end of this year, breaking the bloc’s dependence on Russian oil and gas by 2027. The German Economy Ministry said last month it had already reduced Russia’s share of total gas imports is from 55% to 40%.
But a sudden stop would be disastrous. After Putin threatened to turn off the taps if countries did not do so Payment in rublesthe German government began in the first a Three-stage contingency plan who – which It can lead to Gas rationing. Families and hospitals take priority over many manufacturers.
Fuel prices are displayed on a banner at a Total gas station in Berlin, Germany, on Tuesday, March 15, 2022.
Russian energy giant Gazprom cut off gas supply to Poland and Hungary on Wednesday because they had not made their ruble payments. Many fear that Germany will be next.
according to The country’s central bank. Analysis by five of the country’s top Economic Institutes He also mentioned this month that the sudden ban will lead to the loss of 550,000 jobs during 2022 and 2023.

“Natural gas will likely remain expensive after a ban or supply cut for a very long time,” Sebastian Dollian, director of research at the Macroeconomic Policy Institute, told CNN Business.

He warned of “structural damage” to the German economy if Russia cuts off gas – damage from which it will be much more difficult to recover than the 2008 financial crisis. That could lead to at least a deep recession and may last much longer than it did a decade ago.

Fears of ‘stagflation’

Inflation is only part of the story.

The German economy may already be on its way inside recession. The German Council of Economic Experts, a government advisory group, last month cut its forecast for GDP growth in 2022 from 4.6% to 1.8%, due to inflation and the war in Ukraine.

A woman walks past a supermarket with her cart on March 31, 2022, in Neubiberg, Bavaria.

Manufacturing output shrank this month, falling to The survey showed its lowest level since June 2020 Data from S&P Global, plummeting confidence could lead to a prolonged recession.

“Danger [of a recession]”It’s more than 50% right now,” Dollian said.

Germany, and indeed a large part of Europe, is now staring at Inflation accompanied by economic stagnation That nightmare combination of high inflation and weak economic growth.

“We have to deal”

Companies and countries are struggling with shortages of basic foods and raw materials. For example, skyrocketing energy prices contributed to a decrease in zinc production, a metal used to protect steel, while the Russian invasion of Ukraine endangered global supplies of wheat. Both countries together account for about 30% of global wheat trade.

Some of its members said the German Federation of SMEs Production has already been reduced due to shortages.

“[Production cuts are] not the As a result of power outages or high electricity prices, but [because] “They don’t have the materials to produce the goods,” the association’s chief economist Hans-Juergen Folz told CNN Business.

“For example, aluminum, steel and everything [else] This is in short supply now all over the world due to sanctions against Russia.”

The war in Ukraine has raised fears of a drop in exports of raw materials from the region. Nickel prices, the metal used in it Electric car batterieswhich rose to an all-time high in early March, doubling to $100,000 per metric ton, and launched the London Metal Exchange Trading suspension.
This is bad news for Germany’s auto industry, which is still struggling against The shortage of semiconductor chips.
Delays at the Chinese port of Shanghai – one of the world’s busiest – due to strict restrictions Complete closure due to corona virus In the city, too, global supply chains have faltered in recent weeks. The bottlenecks could not have come at a worse time for German importers.

Höhn, in the Florida Eis, considers himself an optimist, but he cannot ignore the “dark clouds” gathering around the German economy.

“We have to adapt,” he said.