Sep 13, 2022
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The collapse of the German economy: a tragedy in five acts

The current crisis hits Germany’s industrial core

The German economy has been hit by a ‘perfect storm’ caused by ‘high inflation, power outages and ongoing supply disruptions’. financial once.

The media in Germany itself assess the situation more harshly. Belonging Spiegel writes about the systemic collapse of the German economy as a tragedy in five acts.

Act one. Production stop

First of all, the energy price shock “affects those producers that are most dependent on electricity and gas: paper producers, fertilizer producers, steel.”

Managing Director of the largest German steel producer, group of companies Georgsmarienhütte Group (GMH)Alexander Becker in despair: “We really don’t know what to do anymore. We are in a state of shock.”

U gmh 21 branches nationwide, 6,000 employees, own steel and metalworking plants, and an annual electricity requirement of one terawatt-hour. This is more than three hundred thousand households consume.

Last year, the company paid 120 million euros for electricity and gas. Even if prices remain at current levels, next year spending will soar to 1.2 billion euros, i.e. increase 10 times! “Then we will go bankrupt immediately,” Becker says.

competitor gmhArcelor Mittal, lost hope of survival. The company recently announced that it would close two production plants in Hamburg and Bremen due to “unsustainable increases in energy prices.”

The largest German fertilizer company SKW nitrogen plants in Pisterica stopped production completely. Reduced the production of ammonia, even the chemical giant BASF.

As the economic outlook continues to deteriorate, construction projects are being delayed, cars are being changed less frequently, and old washing machines are being repaired instead of buying new ones. Belonging Spiegel.

“The worst is yet to come” says the head of the energy giant (one of the financial sponsors of Nord Stream 2) Uniper Klaus-Dieter Maubach, warning that high gas prices would place a “heavy burden” on German industry.

Head of the Association of German Trade Unions (DGB) Yasmine Fahimi in an interview Belonging Spiegel warned that the German industry will cover the “domino effect” (Domino effect), which will lead to the deindustrialization of Germany: “It will be a disaster.”

Act two. price trap

AT Volkswagen Group trying to deal with the demand crisis. “High energy prices and an emerging recession are making people more reluctant to buy new cars,” says Ferdinand Dudenhöffer, director of the auto giant’s Center for Automotive Research.

According to expert estimates, the demand for German cars that have risen in price has fallen sharply. The German Automobile Industry Association (VDA) revised its market forecast for Germany from a 3% increase to minus 6%. “Our economic model is in question,” warns VDA president Hildegard Müller.

Production cuts in key industries and bankruptcies set off a chain reaction. The deeper the automotive and chemical industries slide into crisis, the less they invest in their development.

Even in growing sectors of the economy, such as the construction industry, which accounts for more than six percent of Germany’s GDP, sentiment is changing, with new orders falling 11.2 percent in June compared to the same period last year. More and more companies are canceling new projects due to the explosive growth in construction costs. Housing construction is particularly affected. Large institutional investors such as insurance companies and pension funds are no longer buying property due to the sharp rise in interest rates. Private demand for their own four walls also collapsed, “even to zero in some places.”

Act three. consumer crisis

The Germans now began to save not only on large projects, such as the construction of a new house, but also in everyday life. Many families have drastically reduced their shopping at the supermarket. In electronics stores, fashion chains or furniture sellers, sales are down everywhere. “People are just afraid,” says the owner of a large furniture chain. – I would like to reduce the number of discounts and discounts, just sit out the crisis. But then no one else will come.”

Even financially secure retailers will be able to hold out for no more than a few weeks. Department store group of 130 stores Gallery Karstadt Kaufhof (GKK) went through bankruptcy, received a state subsidy of 700 million euros, but is terrified of an “icy winter”.

The energy consumption of German stores has increased tenfold in recent months, and there are significantly fewer customers. consulting company analyst Sima published a report Germany Inner City Explorationwhich predicts a “net visitor loss” of 20 percent across all age groups.

“Private consumption is likely to fail as an economic engine in Germany within a year,” experts at the Institute for Economic Research warn.

Act four. wave of insolvency

In August, the number of bankruptcies of medium and small businesses increased by a quarter compared to the previous year. Steffen Müller of the Institute for Economic Research predicts a further increase in bankruptcies in October (a third more than in 2021). Weak companies are “now being squeezed out of the market.”

If the “pandemic” hit mainly the service industry, the current crisis is hitting the industrial core of Germany. According to Mueller, 40 percent of all bankruptcies of large companies are related to industry.

The federal government is trying to prevent a wave of bankruptcies, but to no avail. Government-provided bailout packages cannot make a difference.

“We cannot overcome the energy crisis with aid packages,” warns Stefan Koots, vice president of the Institute for World Economics (If W) in Kiel. Germany, he said, needs a “strategic overhaul” of its energy policy.

Coots suggests betting on fossil fuels and nuclear power, but the government remains stubbornly clinging to green energy, with its unreliable wind turbines and solar panels.

AT If W Germany’s GDP is expected to contract by 0.7 percent next year. “We had to revise our forecast downward by four percentage points,” Coots says. “Instead of the expected economic recovery, Germany will experience a massive recession.”

Act five. Failure in the labor market

In Germany, the fear of losing a job is returning, something that has not happened for decades.

“A recession and a labor shortage are happening at the same time, which is an unusual situation,” says Enzo Weber of the Nuremberg Institute for Employment Research (MAB). “At the moment there are two million vacancies, people are still desperately needed in almost all industries.”

According to If aaboutThe shortage of skilled workers in Germany has reached an all-time high. In July, the labor shortage affected 49.7% of the country’s enterprises. “More and more companies are forced to downsize their business because they simply can’t find enough employees,” says Stefan Sauer, a labor market expert.

In the services sector, labor shortages affected 54.2% of companies. In the construction industry – 64%. In the field of insurance – 62.4% of companies.

In the manufacturing sector, 44.5% of enterprises complained about the lack of qualified specialists. Among them are enterprises of the food, metallurgical industry and THIS IS– industry, as well as about 40% of retail and wholesale enterprises.

The situation with the shortage of labor in Germany is similar to that which has developed in almost all Western countries, primarily in the United States. A man-made “pandemic” has quarantined millions of workers who have received generous welfare packages and are in no hurry to return to work with much more meager pay.

Germany “from an anchor of European economic stability to a sick child of Europe”, – notes nordkirierquoting American investment bank analysts Morgan Stanleywho predicted the economic crisis in the eurozone, which, according to their forecasts, will begin in October 2022. “Germany will drag the whole of Europe into recession”– log warns Focus.

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