Fears of severe damage to German industry loom as high energy prices hit firms

High energy prices are beginning to bite into companies’ investment plans and curtail production in Germany, raising the spectre of de-industrialisation in the country that boasts one of the largest industry sectors of all major economies, business newspaper Handelsblatt reports. A survey by industry federation BDI among industrial companies found that 58 percent of companies regard the price hike for energy and also for raw materials as a “strong challenge” and 34 percent even as an “existential” one that could ultimately force them out of business. Forty-two percent of the surveyed companies said they plan to respond by reducing investments in climate and efficiency measures. “Policymakers have to act now to avert insolvencies and further economic and social turmoil,” BDI head Siegfried Russwurm told the newspaper. Wholesale gas prices for 2023 are currently eight times higher for German companies than for competitors in the US, a situation that could lead to “the winding-up of the basic materials industry in Germany and the entry into de-industrialisation” if the government does not intervene, Franziska Erdle of metallurgic industry association WVM told Handelsblatt. Producing goods like aluminum in Germany, therefore, would simply no longer be competitive on world markets. Since the beginning of the year, the production volume of chemicals producers has dropped ten percent, while the number of company insolvencies was about a quarter higher in August 2022 than one year before, which has led banks to tighten their requirements for company credits, the article says. And high costs for energy also reduce foreign direct investments, state-affiliated commerce agency GTAI said. BDI president Russwurm said a fast and far-reaching re-activation of coal-fired power plants will be necessary to bring down energy costs and provide companies with more planning security. “Every kilowatt hour counts,” he said, arguing that both lignite and hard coal plants should be made available quickly be reducing regulatory hurdles.

High energy prices also were claimed to be the reason for the insolvency of pulp and paper producer Hakle, a well-known German toilet paper brand. The company said the “historic” energy price crisis, following on the challenges caused by the coronavirus pandemic, and higher raw material prices could not be passed on to customers sufficiently to allow further operations, which is why Hakle declared bankruptcy to restructure the company.
Official figures by the economy and climate ministry for production in July had shown industry output declined 1% compared to the month before, whereas energy production increased 2.8%. However, production decreases were much stronger in individual industries, with automotive production dropping 4.6%, chemical production by 2.2% and pulp and paper production by 4.3% in July alone. “Reduced gas flows from Russia and high uncertainty due to the war [in Ukraine] further dim the prospects for the rest of the year,” the ministry said.

The German government has passed a series of relief measures for consumers and businesses to cushion some of the blow of rising energy cost in the wake of Russia's aggression against Ukraine, which also drove overall inflation to multi-decade highs. Some of the government's steps such as postponing the next hike in the carbon price or the relief on petrol cost have drawn criticism from energy and climate experts who fear that an overall delay in climate action will take Germany further off meeting its climate committments.