German manufacturers are halting production in response to the surge in energy prices caused by Russia’s squeeze on gas supplies, a trend the government has described as “alarming”.
Robert Habeck, economy minister, said industry had worked hard to reduce its gas consumption in recent months, partly by switching to alternative fuels like oil, making its processes more efficient and reducing output.
But he said some companies had also “stopped production altogether” — a development he said was “alarming”.
“It’s not good news,” he said, “because it can mean that the industries in question aren’t just being restructured but are experiencing a rupture — a structural rupture, one that is happening under enormous pressure.”
Habeck said rising gas prices were affecting everyone from big industrial companies to small trading firms and the medium-sized enterprises that make up the “Mittelstand”. “Wherever energy is an important part of the business model, companies are experiencing sheer angst,” he said.
He said the business model of large parts of German manufacturing was based on the abundance of gas from Russia that was cheaper than gas from other regions. That competitive advantage “won’t come back any time soon, if it ever comes back at all”, Habeck said.
He was speaking as Russia halted the flow of gas through the Nord Stream 1 pipeline for three days of planned maintenance. The outage comes with European countries already labouring under sharp price rises as a result of dwindling Russian supplies. Prices have more than doubled since Russian exporter Gazprom first restricted deliveries through Nord Stream 1 three months ago.
Habeck’s comments echo recent warnings from Siegfried Russwurm, head of the main German business lobby, the BDI. He said earlier this month that a lot of companies were having to shut down production because “expenses and income are no longer matched”.
He said German companies were not only labouring under higher energy prices but also under the recent interest rate hikes in the US and the slowing growth in China, one of Germany’s largest export markets.
The pessimism was underscored by a recent survey by one of Germany’s leading economic think-tanks, the Ifo Institute, which showed that German business confidence had fallen for its third consecutive month.
The index, based on a monthly survey of 9,000 companies, slipped to a more than two-year low of 88.5, down from 88.7 last month.
Habeck was speaking after a cabinet away-day at the government’s guest house Schloss Meseberg, outside Berlin. Finance minister Christian Lindner said after the meeting that the government was working on a “massive” package of relief measures for hard-pressed consumers buffeted by soaring inflation and rising energy prices.
Lindner said the measures would be in the “single-digit billions” for this year and “double-digit billions” for 2023. The two previous packages of relief measures introduced in the aftermath of Russia’s invasion of Ukraine had together been worth €30bn.
Lindner demanded reforms of the electricity market, where high gas prices were causing an automatic increase in electricity prices which was delivering windfall profits to some energy providers.
Echoing Lindner, Habeck said it was a question of “eliminating the cause” of higher energy prices, not just softening their effects.
