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High gas prices: economic researchers warn of recession


The German Economic Institute is alarmed by the rising gas prices. Accordingly, there is a risk of massive consequences for jobs and inflation - price shocks due to production losses are not even taken into account.

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Natural gas connection in a residential area: Independence comes with high costs

Photo: Christoph Hardt / Panama Pictures / IMAGO

Despite the exploding energy prices, Chancellor Olaf Scholz does not believe "that there will be unrest in this country".

The SPD politician refers to the relief plans of the federal government.

According to an analysis by the Cologne Institute for Economic Research (IW), help is also sorely needed.

The research institution, which is close to employers, warns of the loss of hundreds of thousands of jobs and double-digit inflation rates due to high gas prices.

In their study, the researchers simulated the consequences for the labor market and the economy if the gas price rose by 50 percent in the third quarter compared to the second quarter and if it doubled.

It is based on the consequences of the Ukraine war, especially the energy crisis.

Since the beginning of the war, Russia has drastically reduced its raw material supplies, which is why importers have to buy expensive alternatives to be able to service the contracts.

At the same time, Germany and the other EU countries are striving to reduce their dependence on Russian energy supplies, which is associated with high costs anyway.

The economy threatens to collapse

The result of the simulated developments: »dark« prospects.

According to the research team, if gas prices rise by 50 percent, the inflation rate should increase by 0.9 percentage points on average for the year and by 1.3 percentage points in the coming year.

If gas prices doubled, which is currently a "realistic" scenario, inflation would rise by a point this year and nearly four percentage points next year.

Inflation was last seen at 7.5 percent in July, fueled by high energy prices, which jumped over 35 percent year-on-year.

Food became more expensive by almost 15 percent.

At the same time, inflation was slowed down by government measures such as the 9-euro ticket.

According to IW calculations, if gas prices double, around 30,000 people could lose their jobs this year.

In this scenario, 307,000 people could be affected next year.

The IW also calculated the consequences for gross domestic product if gas prices doubled in the third quarter from July to September: the German economy could then shrink by 0.2 percent this year and then collapse by two percent in the coming year.

This corresponds to a loss of 70 billion euros.

Record number of vacancies

The IW points out that the effects of production outages in the event of a stop in gas deliveries are not even taken into account in the calculations.

"That would trigger additional high price shocks in the value chains," said study author Thomas Obst.

Many experts are still anticipating an upswing in the coming year, however: "But it's possible that nothing will come of it."

The Institute for Labor Market and Occupational Research (IAB) also pointed out the danger of a gas stop.

The research institute belonging to the Federal Employment Agency reported a new all-time high of vacancies – the number for the period from April to June was 1.93 million.

However, there are “serious risks for the labor market in the near future, for example with regard to a possible stop in gas supplies from Russia”.


Source: spiegel

All business articles on 2022-08-11

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