Mon, Mar 28, 2022 page11

• German industry shaken to core by war in Ukraine

  • Bloomberg
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  Germany’s industrial base, just emerging from the COVID-19 pandemic and unprecedented supply chain challenges, is taking another beating with Russia’s war in Ukraine hitting its powerhouse vehicle, chemical and precision-machinery manufacturers.

  As the conflict pushes energy costs to new heights and a wave of inflation builds, scores of companies, including BMW AG, BASF SE and ThyssenKrupp AG, have warned that their earnings would slip, while others declined to offer a prediction. Economists have slashed growth forecasts.

  “If the war drags on, it would seriously threaten a world order that has brought freedom and prosperity to many parts of the world over the past decades,” Volkswagen AG chief executive officer Herbert Diess told the company’s annual earnings news conference on March 15. “Europe would suffer the most in such a scenario.”

  

  Steam rises from a refinery in Gelsenkirchen, Germany, on Nov. 5 last year.

  Photo: AP

  The German government has acknowledged the depth of the predicament, but its options — economic and political — are limited by decades of energy policy that have left Germany among Europe’s most heavily dependent nations on Russian gas and oil.

  Even before the invasion, Germany’s energy-intensive industry base faced momentous shifts with the planned exit from nuclear and coal energy alongside Europe’s highest electricity costs.

  German Minister of Economic Affairs and Climate Action Robert Habeck has set up a task force to gather data from industry on gas and electricity use and prices, production plans, supply bottlenecks and reliance on Russian energy.

  On Friday, Habeck, who has been moving to lock in other energy sources, said Germany wants to end Russian gas imports by the middle of 2024.

  Habeck earlier this month led a group of executives from firms including BASF, Deutsche Bank AG, Commerzbank AG and RWE AG to Qatar and the United Arab Emirates to secure shipments of liquefied natural gas.

  However, the moves cannot provide the immediate relief, and signs are building that the war could cause lasting economic pain to Germany’s export-driven manufacturers that have for years been riding high on demand from China and efficient supply chains.

  German Minister of Finance Christian Lindner has warned that Germany is in danger of stagflation, when high inflation persists alongside an economic slowdown.

  A range of gauges have turned gloomy in a country that depends on its manufacturing sector to keep humming along.

  Goods production accounts for about 22 percent of Germany’s economic activity, compared with 11 percent in France.

  The Kiel Institute for the World Economy cut its growth outlook for Germany by nearly half to 2.1 percent this year, as shock waves from the war offset resurging post-pandemeic demand alongside inflation accelerating to 5.8 percent, the highest level since the country’s 1990 reunification.

  An index of German manufacturing sank further this month, and a key business climate survey fell by a record.

  “With skyrocketing prices for energy and commodities, our main business right now is survival and the preservation of jobs, and no longer making profit,” said Ralf Stoffels, head of BIW Isolierstoffe GmbH, a medium-sized silicon producer in Germany’s former industrial heartland of North Rhine Westphalia.

  Stoffels is not alone.

  A survey of 3,700 companies by business lobby DIHK showed that 78 percent of respondents said the war was hurting their business, and more than half reported rising prices or disrupted supply chains.

  “What hurts us most are electricity prices,” said Simon Eickholt, managing director of Kern Microtechnik GmbH, which makes precision milling machines.

  The firm’s energy costs have nearly doubled, he said.

  Supply chain disruptions and raw material costs are also weighing on Kern, which has about 40 million euros (US$43.9 million) in annual sales.

  The company’s mechanical engineering business receives several notices each week of longer delivery times and price increases of as much as 15 percent, Eickholt said.

  Steffen Auer, managing director of steel trader Schwarzwald Eisenhandel GmbH & Co KG, said prices “are completely crazy,” after the price of sheet metal nearly doubled within a week, forcing the firm to raise prices almost daily.

  “Some of our customers can’t pay those prices,” Auer said.

  Russia supplies about two-thirds of Germany’s natural gas, half of its coal and about one-third of its oil.

  The biggest worry for German businesses is a possible shutdown of Russian energy supplies — either by the Kremlin or the EU.

  Habeck on Friday underscored Germany’s predicament.

  “Even if we become less dependent on Russian imports, it is too early for an energy embargo at this point in time,” Habeck said. “The economic and social consequences would still be too serious.”
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