Economic crisis: Recession inevitable after gas supply stop

by time news

Nfter Russia’s announcement that it would no longer send gas through the Nord Stream 1 pipeline for the time being, Germany has to brace itself for a severe economic downturn. “This is a really gloomy scenario, a recession can hardly be avoided,” said Clemens Fuest, President of the Munich Ifo Institute of the FAZ

Johannes Pennekamp

Responsible editor for economic reporting, responsible for “The Lounge”.

On Friday evening, the Russian gas company Gazprom announced that an oil leak had been discovered during maintenance work. The safe operation of the gas turbine is no longer guaranteed. Until the repair, the delivery was completely stopped, explained the group, which had gradually reduced the deliveries through the most important gas pipeline for Germany from Russia in the past few months.

If the delivery stop remains, the negative scenarios that economists have been calculating for months will occur. A month ago, a team of eleven researchers led by Rüdiger Bachmann (University of Notre Dame) presented a study in which they estimated the damage from an immediate delivery stop to be slightly less than that during the corona pandemic. In the Corona year 2020, German economic output shrank by 5 percent compared to the previous year. Other researchers considered greater damage possible. Ifo boss Fuest said on Sunday: “I think it won’t be quite as bad as during the pandemic, but the uncertainty is enormous.”

How severe the slump will be depends above all on how well the consumption of gas and electricity can be reduced without restricting the production of goods too much. It is estimated that industry and private individuals will have to reduce gas consumption by a good fifth compared to previous years so that rationing is not necessary in winter. According to the Federal Network Agency, industry used around 21 percent less gas in July than the average for the years 2018 to 2021. “We can all influence whether it works without rationing in winter: It stands and falls with the behavior of private households,” said the President of the Federal Network Agency, Klaus Müller, the FAZ

The agency sees worrying signals in this regard. “Private consumers slightly increased their gas consumption in the first, somewhat colder week of September,” warned Müller. Apparently not everyone realizes that if you want to save gas, you have to change the heating settings accordingly. He emphasized that the gas storage facilities are now 85 percent full. However, the storage alone is not enough to get through the winter without making savings.

There had already been many signs of a downturn in the past few weeks, which are now likely to intensify: consumers are increasingly holding onto their money due to high inflation, which is causing the retail trade to suffer. The Kiel economist Stefan Kooths had spoken of an upcoming “consumption shock” in this context. This shock could be somewhat alleviated by the government’s relief package. The mood in the industry is also darkening, as several surveys show. Some companies are already taking action: On Friday, the world’s largest steel group, Arcelor Mittal, announced that it would shut down two plants in Germany until further notice.

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