Employment Research (IAB) reports that the German economy has lost a whopping €260 billion since March 2022 due to high energy prices.
Further, it might get even worse. One expects a massive hit to employment. Painful unemployment is the reality of the near future for the EU’s largest economy.
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“Antigrowth” is the number one trend in Germany’s economy
Germany’s GDP could be 1.7% lower in 2023. Job losses are forecasted at around 240,000. At the same time, market shocks will last until 2026. And before 2030, significant improvements are not expected.
More vividly, the side effect can be seen in the hotel business and tourism. “Antigrowth” triggers are the pandemic, falling purchasing power, the backdrop of high inflation, and negative wage dynamics.
IAB writes that the electricity price increases will shake energy-intensive industries, mainly the chemical and metallurgical ones.
Crippling energy shortages
According to the IAB basic scenario, if energy prices (they’ve already skyrocketed 160%) double again, German output will decrease by almost 4% compared to better times. The German labor market may lose 660,000 people in three years.
Last week, German electricity prices hit record highs as an abnormal heat wave boosted demand, putting pressure on energy supplies ahead of winter.
Graph 1. Growth dynamics in electricity prices. Germany.
Rising electricity prices are sending German households in dangerous distress as economic sentiment in the EU has fallen to a new anti-record. And most importantly, what is happening in Germany has every chance of spreading to the rest of the EU.
Graph 2. European Consumer Confidence Indicator. Germany.
A tough slowdown in German GDP growth could spark stagflation as German inflation unexpectedly accelerated in July, and the Harmonized Consumer Price Index (HICP) rose by 8.5% year-on-year.
Graph 3. Annual dynamics of the HICP index. Germany.
Germany is facing an unprecedented cut in energy supplies. Without Russian natural gas and Nord Stream 1, Europe’s largest economy risks falling into the Dark Ages, metaphorically speaking.
Waiting for no miracles to come
Rainer Dulger, head of the Confederation of German Employers’ Associations, believes that the current crisis is something Germany has never seen before.
Economics Minister Robert Habek warns of a “catastrophic winter” due to Russian gas shortages.
Other officials and experts anticipate massive bankruptcies, inflation, and forced energy rationing this winter.
Jasmine Fahimi, head of the German Trade Union Federation, warns that due to the lack of gas, all the industries are in danger of permanent collapse, especially aluminum, glass, and chemicals.
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