February 3, 2023

German inflation: Soaring costs and shortages push industry to the brink

6 min read

“This has never happened before,” George Gear, the company’s managing director, told CNN Business.

Significant difference between past and present? Customer demand is high, but Siempelkamp either can’t find it, or can’t afford it Luggage It needs iron, nickel and energy.

The companies are a key part of the “Metal Stand”, which is part of the 2.6 million small and medium-sized enterprises 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 connected to rural communities.

The Siempelkamp foundry burns enough energy to supply electricity to a city of 20,000 people each year. For years, the company paid between € 40 ($ 43) and € 50 ($ 53) per megawatt of electricity. But its bills soared around September and then “exploded” at all-time highs. Russia invades UkraineGear said. The average price in March was about € 250 ($ 267) per megawatt hour.

“We have been notified. [of our energy costs] Almost every day, Gear said. “When we get up to go out.”

War has broken out. Global inflation, Which began to accelerate last year as economies reopened from the epidemic lockdown, which led to increased demand for energy and goods. Now, Western sanctions on Russia Coal and oil exports – and efforts by the European Union Slash consumption Its natural gas prices have risen again. Sanctions on Russia, a major exporter of metals, have further strained the supply chain.

Europe’s largest economy is particularly weak. According to the International Energy Agency, Germany relied on Russia for about 46% of its natural gas consumption by 2020. That number is likely to decline since the war began, but a sudden disruption to imports from Russia would be “devastating” for manufacturers. Like SimpleCamp, Gear said.

Rising prices.

So far, SampleCamp has not cut production, But passing It increases the cost of eye-watering for consumers, such as copper and cement producers who use its grinding mills, and electric car makers who use its machines. In return, it expects its clients to pass on the costs to customers.

Germany’s annual Producer Price Inflation – This is the price of factory-made goods – reached 30% in March, the highest level in 73 years.
Prices at the factory door. Feed customers. Price inflation, which hit one 41-year high 7.3% last month. In both cases, rising energy prices were the most helpful. According to preliminary estimates, there was no relief in April, with consumer prices rising 7.4% over the same month last year.

An ice cream maker in Berlin is also feeling the strain.

The Florida Eis is partially protected from high prices – it has converted most of the energy used for production and transmission into renewable energy – but not its suppliers. The company is now paying between 30% and 40% more for its milk.

Its owner, Olaf, trembled at the thought of the loss. Russian gas.

“The sugar industry needs a lot of energy. If they don’t have more gas, there will be no more raw sugar,” Hoon said. “We cannot buy raw sugar in the world market because of EU regulations.”

“We will have strong cutbacks until the full stop,” he added.

Ice cream cans pictured on the conveyor belt of Florida Eis, an ice cream maker in Berlin, Germany, in July 2015.

Rising prices have shaken a country that has long been proud of its stable economy, and it still has a deep fear of the hyperinflation of the 1920s and 1930s, about which widespread The Nazi Party is thought to have survived an earlier attempt to oust him following Mr Jiang’s intervention.

Dirk Howe, managing director of SimpleCamp, wonders how long this will last.

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

Germany’s appetite for relative Cheap and reliable Russian energy Thomas Vanuatu, an associate professor of economic history at Bocconi University, said there was a long-standing competitive advantage, and it helped deal with past economic crises.

That benefit has now become a responsibility.

EU leaders have. Pledged to reduce consumption. 66% reduction in the price of Russian gas before the end of this year, and by 2027 to end the bloc’s dependence on Russian oil and gas. Russia accounts for 55% to 40% of total gas imports.
But a sudden stop would be devastating. Putin threatened to turn off the taps if countries did not do so. Pay in rublesThe German government launched the first one. A three-phase contingency plan That Can lead Gas rationing. Homes and hospitals will be given priority over many industrialists.
Total gas station fuel prices in Berlin, Germany, on Tuesday, March 15, 2022.
Russian energy giant Gazprom Disconnect the gas supply. Went to Poland and Hungary on Wednesday because they did not pay in rubles. Many fear that Germany could be next.
According to the report, the sudden break in will reduce the German GDP by about 2% in 2022. Central Bank of the country. Analysis of five top personalities of the country Economic Institutions The month also said that the sudden ban would result in the loss of 550,000 jobs in 2022 and 2023.

“Natural gas will likely remain expensive after the ban or supply cuts,” Sebastien Dulin, research director at the Macroeconomic Policy Institute, told CNN Business.

He warned that if Russia cut off its gas supplies, Germany’s economy would suffer “structural damage” – a loss that would be more difficult to repair than in the 2008 financial crisis. This could lead to a recession at least as deep and possibly longer than a decade ago.

Fear of ‘Stagflation’

Inflation is just one part of the story.

Germany’s economy is already booming. I The recessionary German Council of Economic Experts, a government advisory group, last month cut its GDP growth rate from 4.6 percent to 1.8 percent in 2022, citing inflation and the war in Ukraine.

A woman walks through a supermarket with her shopping cart on March 31, 2022 in Newburgh, Bavaria.

Manufacturing output down this month, According to the survey, this is the lowest level since June 2020 S&P Global’s data, and declining confidence could lead to a prolonged downturn.

“Danger [of a recession]”I would say it’s over 50 percent right now,” Dolan said.

Germany, and indeed most of Europe, is now looking at it. Stagnation – That nightmare of high inflation and weak economic growth.

‘We have to endure’

Companies and countries are facing shortages of basic food and raw materials. For example, energy prices have risen sharply. Decreased zinc productionMetal used to protect steel, while Russia’s invasion of Ukraine has threatened global wheat supplies. Both countries account for about 30% of the total. Global wheat trade.

The German Association for Small and Medium Enterprises said it had some members. Decreased production due to already shortage.

“[Production cuts are] It’s not The result of power shortages, or high electricity prices, however [because] They don’t have the materials to make the goods, “Hans-Jگنrgen Wells, the association’s chief economist, told CNN Business.

“For example, aluminum, steel and everything [else] Due to sanctions against Russia, its supply is low worldwide at the moment. “

The war in Ukraine has raised fears of a drop in raw material exports from the region. Prices of nickel, the metal used in it Electric car batteriesReached an all-time high in early March, doubled to $ 100,000 per metric ton, and activated the London Metal Exchange Suspend trade.
This is bad news for the German auto industry, which is still struggling. Lack of semiconductor chips.
Delays at China’s Shanghai port – one of the world’s busiest ports – due to tightness Corona virus lockdown The city has also shut down global supply chains in recent weeks. There could have been no worse time for German importers.

Hoon, in the Florida Ace, sees himself as an optimist, but he can’t even ignore the “dark clouds” that have gathered over the German economy.

“We have to deal,” he said.

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