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Recession fears rock Germany as energy costs hit business | Economy

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“Then it’s pasta, isn’t it?” the German quipped earlier this month when he heard that a toilet paper manufacturer had gone bankrupt.

After all, during the pandemic, toilet paper was the second most popular item in supermarkets, while pasta was number one. The consumer was strictly allotted one of the rolls or his two packets so that no one would eat. But Düsseldorf luxury brand Hakle, known for its three-ply rolls that “bring comfort since 1928,” which boomed during the pandemic, plummeted as a result of the energy crisis. It became the first major German consumer goods company to go bankrupt due to soaring energy and raw material prices.

Last week, the Munich-based Ifo Institute for Economic Research sharply lowered its growth forecast for Germany, declaring that “we are headed for a winter recession”. Europe’s largest economy is forecast 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.

“The cut in gas supplies from Russia this summer and the massive price hikes it has caused are hitting the post-coronavirus economic recovery hard,” said Timo Wolmershuser, IFO’s head of forecasts. said, adding that he did not expect a “return to normality”. In 2024 he expects 1.8% growth and 2.4% inflation.

German Chancellor Olaf Scholz is traveling to the Gulf this weekend to secure supplies of liquefied natural gas (LNG) from the United Arab Emirates.

Paper production is very energy intensive. Hakle used 60,000 MWh of gas and 40,000 MWh of electricity each year. According to the company, the rise in energy costs has been so intense and rapid that it hasn’t been able to tell consumers about it in time, and they are switching to his cheaper two-layer rouroll.

Toilet paper maker Hakle has filed for bankruptcy as the cost of energy and raw materials skyrocketed. Photo: DPA Picture Alliance/Alamy

Company bosses, trade union leaders, shopkeepers and employees across the country openly voice their fears of a crisis in Europe’s largest economy, which is at risk of spiraling out of control. They questioned Scholz’s apparent optimism in hiring Gerry and Habeck, admitting that “the financial pressures are huge” and “if we manage to get through this winter, next summer and winter will be pretty relaxing.” will.”

In Hannover, northern Germany, bakery Eckehard Vatter, which has 35 branches and employs 430 people, saw its gas bill rise 1,200% to €75,000 (£65,800) a month. After that, I recently went to meet with the press. “Are they crazy? They’re going to have to turn off the oven,” he said, before taking to the streets on Wednesday with about 1,000 other bakers, holding placards and chanting, “Let us It has led to the greatest crisis in history,” he criticized politicians and called for urgent state aid.

Yasmin Fahimi, president of the German Trade Union Confederation (DGB), said she feared the consequences of so many challenges coming together. “Some companies are reaching their limits. This risks a domino effect that could lead to a catastrophic deindustrialization of Germany,” she told Spiegel.

She called on the government to protect businesses that are particularly threatened due to their high energy use. Raise them again. Those who close their shops now will never come back. we need to be clear about that. ”

ArceloMittal Steelworks, Hamburg
The ArcelorMittal steelworks in the ports of Hamburg and Bremen will close “until further notice” due to high energy costs. Photo: Action Press/REX/Shutterstock

Many companies are doing just that, either minimizing production or, in the case of the ArcelorMittal steelworks in the ports of Hamburg and Bremen, planning to close “until further notice”.

This scenario is being repeated across Germany, hitting most of the energy-intensive industries such as steel, building materials, glass, paper and chemicals that form the backbone of the German economy. The “de-industrialization” that Fahimi fears is what could happen if they shut down completely.

Meanwhile, cheaper energy and production costs elsewhere (gas is ten times cheaper in the US) are causing some companies to relocate their manufacturing bases. But for the hundreds of thousands of small to medium-sized, often family-run, location-loyal Mittelstand companies, they have been Germany’s main growth engine since World War II. . This 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 ‘strong’ or ‘sustainability’. In the case of ammonia, which is essential to the agricultural industry for the production of fertilizers, producers such as BASF are forced to minimize production and buy chemicals from other cheap markets around the world.

Volker Jung, head of the bankrupt Hakure toilet paper company, called the state-backed energy price cap “otherwise” and “would see if Germany could afford to make paper again. You can ask,” he said.

Shoppers in the city center of Bonn, Germany
A recent survey found that consumer confidence in Germany is at its lowest level since 1949. Photo: Ying Tang/NurPhoto/REX/Shutterstock

Wolfgang Große Entrup, head of the German Chemical Society (VCI), warned that Germany risks developing new dependencies when it should think the other way around.

Another recent survey showed that consumer confidence is at its lowest level since the founding of the Federal Republic of Germany in 1949. In the face of rising energy prices, households are rethinking their spending, from holidays to household shopping to dining out.

Businesses are doing the same, avoiding new investments and instead holding crisis meetings about how much they can cut heating in their factories and offices.

An increasing number of companies are switching their workforce to the ‘kurzarbeit’ (short working hours mode), first introduced in the 1920s in response to the economic crisis in the Weimar Republic and then to great effect during the global financial crisis. increase.

This willingness to stick with workers is considered very important if Germany has any chance of getting out of the current crisis. But the question is being asked more and more.

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