Preliminary result of the study made by Germany’s Union for Chambers of Industry and Trade (DIHK) on crisis of energy transfer indicates that there are more companies who wish to relinquish their productions in Germany or wish to limit their trade activities due to sharp increase of energy prices.

On this basis, 16% of total industrial companies feel that they are obliged to reduce their production or at least a part of their production and thus react to the present status of energy. Based on the opinion poll conducted by Germany’s Union for Chambers of Industry and Trade (DIHK), almost two third of industrial companies consider high price of electricity and gas as a threat to competition in Germany.

According to Peter Adrian, Chairman of Germany’s Union for Chambers of Industry and Trade, these are concerning figures and show that many companies have no way out but to close down or transfer their production line to other places.

Economic Impacts and Expected Consequences of Energy Crisis in Germany

Energy crisis will reduce production and economic development on the top of disordering supply chain and reduction of exports in the strongest economy of the EU. Economic predictions confirm that the perspective of production will considerably incline towards reduction and reform. That’s why companies will bear considerable costs and risks within the coming months.

At present, a large number of companies have realized that they can not convey adequately the increased costs that they have directly or indirectly experienced to their clients. Companies will also have less money to invest. The amount was about 0.4% in 2022 and will decrease to 3.1% in 2023.

According to estimations, in 2023 GDP will be 0.2% less (than that of 2022). Investments will reduce 0.4% and 4.2% in the current year and in 2023 respectively. Therefore, unemployment rate will increase a little bit more than 0.5% (of the present rate) in 2023.

Likewise, there will be a proportion between the size of the company and expected consequences: On average, larger companies predict more serious impacts on their production. About 20% of companies believe that they can substitute natural gas to some extent, but the vast majority of 58% of companies do not see any alternative option in short term, particularly, in East Germany where there is no conceivable option to substitute natural gas.

Energy price rise will also impress consumers. According to a surveys conducted by Germany’s Economy think tank (IW), whereas people will have less money, therefore, they will considerably spend less. With fuel price rise, German consumers will spend a larger share of their household income on gas, electricity and other warming fuels as well as fuel for their personal vehicles, mainly on petrol and gas. Consumers and producers should remain prepared for constant high prices.

Based on economic surveys, normal conditions or conditions similar to pre – Ukraine crisis, when imports and purchase of energy used to be sustainable with no ambiguity on import of energy, will not restore. Therefore, energy policy of Germany has been planned on the basis of energy infrastructure through construction of stronger Liquid Natural Gas (LNG) terminals or the renovation of those terminals.

But this requires cost and time; supporting packages that so far proposed, can only compensate to some extent the expected extra burden but they can not meet the economic needs and reduction of purchase power of medium class in Germany’s society who pay the most taxes.

An assessment of economic burden of war in Ukraine on companies and firms show that almost 12% of them will resort to measures in personnel field like the reducing working hours, reducing overtime payment, and reducing new staff employment that can cover building, construction, transport, agriculture and tourism sectors.

In general, it seems with continuation of tension between Russia and the EU, the shortage of fuel in winter will turn to become one of the serious challenges for Europe; among the risks of complete halt, the reduction of gas delivery to Germany’s economy will be non – substitution of suitable and adequate alternatives for industry and consumers who use natural gas. Consequently, the production may considerably shrink. At present, a survey on economic data confirms obvious impacts of energy price rise on reduction of production and price rise for consumers. There is also a probability that energy crisis will leave effects on production and economic development for longer time.

Production reduction may impress basic industries and supply chain as well. Problems of supply chain in its turn, will lead to reduction of production and price increase. Therefore, government’s economic policy will have to support the continuation of production in short term which will be coupled with extra costs for Germany’s government.