Analysts are warning that Germany’s economy is beginning to throw out recessionary signals.
For the fourth month in a row now, the German IFO survey of business confidence, a key futures indicator in the nation, has pointed down. Analysts note it is pointing to a recession due to blistering inflation that is being produced by sky-high gas prices, which hit businesses hard as they sap consumer’s pocketbooks, leaving them with less to spend.
The Munich-based IFO institute noted its index dropped from 88.5 in August to 84.3 in September, the lowest level seen since the 2008 financial crisis.
Carsten Brzeski, chief eurozone economist at ING bank noted that high energy prices were both weighing on demand and destroying profit margins. Due to the tight pocketbooks of consumers, companies cannot just raise prices, without crushing overall sales and revenues. Some energy intensive businesses, such as bakeries, are facing costs which will force them to simply close their businesses.
The index was released as economists are now predicting a recession within the Eurozone as a whole.
Germany previous received plentiful and cheap gas from Russia via the Nordstream 1 pipeline, and had constructed the Nordstream 2 pipeline, which was ready to be turned on, increasing flows, and further reducing costs. Nordstream 2 was never opened due to political disputes. Then, after Russia began its special military operation in Ukraine, the West imposed sanctions on Russia.
The sanctions prevented Russia from acquiring a turbine that had been shipped to Canada for service, and which was necessary for safe maintenance of gas flows through the Nordstream 1 pipeline. Without it, flows were first restricted to 40% of capacity, then 20% after a second turbine failed. Flows were fully shut off after maintenance of the pipeline uncovered that the last remaining turbine had developed an oil leak, and could no longer be operated safely.
Absent a Russian supply of gas, Germany has been forced to purchase LNG on the spot market at increased prices far above its contracted prices with Russia.
However as Germany heads into the winter, when consumption will peak, even with the imported supplies and its reserve capacity, experts say that Germany will still have to conserve to make it through the winter without the Russian supply feeding the nation.
Germany uses the gas to heat homes, run factories, generate electricity, and in various industrial production methods, such as the chemical production of ammonia, that is used to make fertilizer.
German Chancellor Olaf Scholz visited Saudi Arabia, the United Arab Emirates and Qatar this past weekend and reportedly made some additional energy deals, however analysts predict it is unlikely the nation will make up for the lost Russian supply.
