Recession fears rock Germany as energy costs hit businesses | Economy

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“Not pasta then?” Germans joked earlier this month that, among all things, a toilet paper maker had gone bankrupt.

After all, while toilet paper was the second most searched supermarket item at the height of the pandemic, pasta was number one. Consumers were strictly rationed to one or two packets of rolls to ensure that no one went without. But after exploding during the pandemic, Düsseldorf-based luxury brand Hakle – known for “bringing comfort since 1928” with its three-ply rolls – has bombed following the energy crisis. It is the first major German consumer goods producer to collapse due to soaring energy and raw material costs, and there are indications that it will be followed by many others.

Last week, the Munich-based economic research institute Ifo downgraded its forecast for German growth, saying “we are headed for a winter recession”. It forecast Europe’s biggest economy to contract by 0.3% in 2023, after growing just 1.6% this year. Inflation is expected to reach 8.1% this year and 9.3% in 2023.

“Gas supply cuts from Russia this summer and the drastic price increases they triggered are wreaking havoc on the economic recovery from coronavirus,” said Timo Wollmershäuser, Ifo’s head of forecasts, adding that he did not expect a “return to normal” before 2024, when growth of 1.8% and inflation of 2.4% could be expected.

German Chancellor Olaf Scholz is heading to the Gulf this weekend to secure supplies of liquefied natural gas (LNG) to the United Arab Emirates, as Russia chokes off its gas supply. Economy Minister Robert Habeck said: “The gas supply is gradually expanding and the government is in ongoing talks with many countries, also with nations on the Arabian Peninsula.”

Paper production is very energy intensive. Hakle used 60,000 megawatt hours of gas and 40,000 MWh of electricity each year. Energy cost increases came so hard and fast, the company said, that it was unable to pass them on in time to consumers, who in turn switched to toilet rolls. cheaper two-ply.

Toilet paper maker Hakle has filed for insolvency due to soaring energy and raw material costs. Photograph: dpa Picture Alliance/Alamy

Business leaders, union leaders, shopkeepers and employees across the country are openly expressing their fears that a crisis in Europe’s largest economy risks spiraling out of control. They question the apparent optimism of Scholz, who adopted the Gerry and the Habeck admitted “the financial pressure is enormous”, offering the faint hope that “if we manage to get through this winter, we have a good chance that d ‘here next summer and winter things will be considerably more relaxed’.

In Hannover, northern Germany, baker Eckehard Vatter, who has 35 branches and employs 430 people, recently spoke to the press after his gas bill rose 1,200% to €75,000 (£65,800) per month. “Are they crazy? We will have to turn off the ovens,” he said, taking to the streets on Wednesday with around 1,000 other bakers, who held up signs accusing politicians of “dragging us into the biggest crisis ever” and calling for urgent state support.

Yasmin Fahimi, the president of the Federation of German Trade Unions (DGB), said she feared the consequences of so many challenges coming at once. “Some companies are on the edge. This risks a domino effect that could lead to the deindustrialization of Germany, which would be a disaster,” she told Spiegel.

She called on the government to protect companies that are particularly at risk, due to their high energy consumption, “to ensure that they are able to maintain a minimum level of their production capacity, so that when the “Things are getting better, they can speed things up. Those who have closed up shop now will never come back. We need to be clear about that.”

Arcelormittal steelworks, Hamburg
ArcelorMittal steelworks in the ports of Hamburg and Bremen plan to close “until further notice” due to soaring energy costs. Photography: Action Press/REX/Shutterstock

Many companies have done just that: cut production to the bare minimum or – in the case of ArcelorMittal’s steelworks in the ports of Hamburg and Bremen – plan to close “until further notice”.

The scenario is repeating itself across Germany, affecting most of the energy-intensive industries – steel, building materials, glass, paper, chemicals – which form the backbone of the German economy. The “deindustrialization” feared by Fahimi is what could happen if they shut down for good.

Meanwhile, cheaper energy and production costs elsewhere — gas is 10 times cheaper in the United States — is driving some companies to offshore manufacturing. But in the case of the hundreds of thousands of Mittelstand companies, which are small and medium-sized businesses, often family-owned and loyal to a specific location, which have been Germany’s main engine of growth since World War II, c is hardly an option.

According to the Federation of German Industries (BDI), 90% of companies cite the level of energy and raw material costs as a “strong challenge” or an “existential challenge”. In the case of ammonia – vital to the agricultural industry for fertilizer production – producers such as BASF have cut production to a minimum and have been forced to buy the chemical from cheaper markets elsewhere in the world. world.

Volker Jung, the head of bankrupt toilet paper company Hakle, called for a state-backed energy price cap “otherwise,” he said, “we can ask ourselves if the ‘Germany will one day be able to afford to make paper again’.

Customers in downtown Bonn, Germany
German consumer confidence is at its lowest since 1949, according to a recent survey. Photography: Ying Tang/NurPhoto/REX/Shutterstock

Wolfgang Große Entrup, the head of the German Chemical Association (VCI), warned of the risk of Germany developing new addictions at a time when it should seek to do the opposite.

Another recent survey shows that consumer confidence is at its lowest since the founding of the Federal Republic of Germany in 1949. Faced with higher energy bills, households are rethinking their spending, from holidays to household purchases to meals in restaurants.

Companies are doing the same, avoiding new investments and instead holding crisis meetings to determine how much they can reduce heating in factories and offices.

More and more companies are switching their workers to “Kurzarbeit” – part-time work – which was first introduced in the 1920s in response to the economic crisis of the Weimar Republic, then used with a considerable effect during the global financial crisis.

This willingness to cling to workers is seen as crucial if Germany has any chance of emerging from the current crisis. But more and more, the question arises: how long can she afford to do this?

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