German industry has grown rich, thanks in part to close energy trade ties with Russia, its political and economic rival. In recent years, Russia’s invasion of Ukraine and cutting off cheap and vital gas supplies to Germany has revealed just how misguided the relationship has become.
Now, one of the leaders of Germany’s renewable power industry has suggested that this is a mistake the country may regret forever, as the fallout from the energy crisis could permanently damage the industry. .
When you talk to financial timesMarkus Kleber, head of RWE, said gas prices in Germany are structurally higher than in other parts of Europe due to the country’s dependence on liquefied natural gas imports.
Germany was importing 55% of natural gas supply It was imported from Russia when Russia invaded Ukraine in February 2022. Russia was also Germany’s main source of oil and coal imports.
Since then, the country has managed to wean off much of its dependence on Russian gas. Germany will cut its gas imports by 32.6% in 2023, largely due to cutting off supplies from Russia, the country’s energy regulator said.
But Germany remains heavily dependent on other countries for its energy supplies, creating price problems for its struggling economy. According to the head of RWE, the impact on German industry is likely to be significant and long-term.
“We will see some recovery, but I think there will be significant structural demand destruction in energy-intensive industries,” Kleber said. FT.
German industry declines
Since Russia’s invasion of Ukraine, Germany has found itself in the unusual position of being a major laggard in Europe’s stagnant economic engine.
The country is on the brink of a technological recession after an economic crisis. the economy has shrunk 0.3% in 2023. The outlook for this year is grim, with the German government lowering its GDP growth forecast for 2024 from 1.3% to 0.2%.
The economic powerhouse’s former powerhouse of energy-intensive industry has languished since the Russian invasion, posing a serious problem for Russia.
German Purchasing Managers Index (PMI) construction sector It has been on a decreasing trend since the beginning of 2022. manufacturing industryOn the other hand, it has been on a decreasing trend since mid-2023.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “German manufacturing has been in recession since the middle of last year, and the latest PMI data suggests a further contraction in the first quarter of 2024. “There is,” he said.
“What’s worse, the economic downturn is so widespread that it extends not only to capital goods but also to intermediate and consumer goods,” he added.
This has sparked a debate over whether Germany, which shed its post-Cold War title in the 1990s, can once again be considered the “sick man of Europe”.
Deutsche Bank CEO Christian Sewing in September cited rising energy costs and a lack of skilled labor as some of the obstacles facing Germany’s economy, warning that Germany could become Europe’s sick man. I warned you that there is.
The head of Germany’s central bank, the Bundesbank, was forced to hit back at this unfortunate nickname, arguing that Europe as a whole, not Germany in particular, was at risk of “getting sick”.
German companies make strides
RWE is one of several German companies that seem to have had enough of Germany’s flatline industry.
German companies nearly tripled their investments in the United States to $15.7 billion in 2023, according to FDI Market analysis.
The downturn in German industry was also the cause of capital flight to the US and Joe Biden’s Inflation Control Act (IRA), which provided strong subsidies to new companies.
Major automakers such as Volkswagen and Mercedes-Benz have stepped up their efforts in the United States.
On the other hand, RWE announced Following the completion of the acquisition of Con Edison Clean Energy Businesses, a new U.S. division called RWE Clean Energy was created. The group has secured $15 billion for investment in its U.S. operations.
“The United States has consistent and comprehensive policies that encourage manufacturing to come back home,” RWE’s Klebber said. FT.
“Europe has the same intentions, but appropriate measures have not yet been taken.”
