– by René Wagner
BERLIN (Reuters) – The bad news from the German economy is piling up: Businesses cut production in August at the most since Russia’s war against Ukraine began, while inflation-plagued consumers cut back on shopping.
The strongest rise in import prices in 48 years, driven by expensive gas, also signals that the worst is yet to come in terms of inflation. “Everything points to a recession in the winter half-year,” Commerzbank chief economist Jörg Krämer summarized the data published by the Federal Statistical Office on Friday.
Industry, construction and energy suppliers together reduced their production in August by 0.8 percent compared to the previous month due to high energy prices and severe obstacles caused by the extremely low water level on the Rhine. This is the sharpest drop since March, the first full month since the war began. “The continued great uncertainty about the progress of the war in Ukraine and the practically dried up gas supplies from Russia have dampened activities in the industry,” commented the Federal Ministry of Economics. Industry alone reduced its emissions by 0.1 percent. In construction, production fell by 2.1 percent, while power generation contracted by 6.1 percent.
In the energy-intensive branches of industry – which are particularly suffering from the massive rise in energy prices – production shrank at an above-average rate of 2.1 percent. In addition, the low water slowed things down – especially on the Rhine, where the water levels fell below zero in some places in the summer and brought inland shipping to a standstill in some cases. “In the manufacture of chemical products and in the coking plant and mineral oil processing, production in August was probably affected, among other things, by the restrictions on goods transport in inland waterways as a result of the severe low water,” said the statistical office.
“CONSUMERS BUCKLE BELTS TIGHTER”
The retailers, in turn, are struggling with the dwindling purchasing power of consumers. Adjusted for inflation (real), their sales in August fell by 1.3 percent on the previous month. Consumers were noticeably reluctant to buy groceries: Here the retail trade recorded a real drop in sales of 1.7 percent compared to the previous month and even 3.1 percent compared to the same month last year. “This means that food retail sales are at their lowest level since January 2017,” according to the statisticians.
“Consumers are tightening their belts,” said the chief economist at VP Bank, Thomas Gitzel. “The food retail trade is currently getting the full breadth of inflation. Citizens are saving on their daily food.” Real sales at petrol stations, on the other hand, rose 14.0 percent on the previous month and thus more strongly than at any time since statistics began in 1994. “Consumers may have used the last month of the tank discount to replenish their supplies,” according to the statistics office. The federal government introduced the rebate from June to August to curb inflation.
This is only likely to reach its peak in the coming months. This is indicated by the imports, which rose more in August than at any time since 1974 due to the gas shortage. Import prices increased by 32.7 percent compared to the same month last year. In view of the Russian war, energy remained the number one price driver: its imports rose by 162.4 percent. “The high increase compared to the previous year is still primarily due to the strong price increases for imported natural gas,” the statisticians explained. These prices were four times higher than a year earlier. Compared to July alone, they rose by 48.2 percent. Electricity even cost 464.5 percent more on the exchanges than a year earlier.
“We don’t need a crystal ball to see a further weakening of German industry in the coming months,” said ING chief economist Carsten Brzeski. “The full impact of higher energy prices will only be felt towards the end of the year.” According to the Federal Government, this is driving Germany into a recession. In the autumn projection, according to preliminary figures, gross domestic product is expected to fall by 0.4 percent in 2023, Reuters learned from two people familiar with the calculations. For the current year, growth expectations are expected to be reduced to 1.4 percent. Federal Minister of Economics Robert Habeck (Greens) will present the projection next Wednesday.
(Report by Rene Wagner, collaborator: Holger Hansen, edited by Sabine Ehrhardt. – If you have any questions, please contact our editorial team at [email protected])