"It's burning like hell": German industry cuts economic forecast drastically

Created: 06/21/2022, 10:24 am

Siegfried Russwurm: The president of the industry association BDI is looking forward to the coming months with great concern.

© Michael Kappeler/dpa

Concern is growing in German industry in view of disrupted supply chains and the Ukraine war.

Germany saved on the fire department.

Now the situation is dramatic.

Berlin – German industry has drastically cut its forecast for this year.

The Federation of German Industries (BDI) now expects economic growth of around 1.5 percent for the current year, as the BDI announced on Industry Day on Tuesday in Berlin.

At the beginning of the year, the association had assumed an increase of around 3.5 percent.

Most recently, leading economic research institutes such as the Munich ifo Institute or the Kiel Institute for the World Economy had also slashed their forecasts for 2022.

"The industry is struggling with the double crisis of the Russian invasion of Ukraine and the effects of the Covid pandemic," said BDI President Siegfried Russwurm.

"From today's perspective, accepting massive dependencies as the price for cost advantages and economies of scale was just as wrong as our country forgoing sufficient investments in its own defense capabilities," said Russwurm.

“We skipped the fire brigade because we considered the risk of fire to be negligible.

Now it's on fire."

We skipped the fire brigade because we considered the fire risk to be negligible.

Now it's on fire."

Siegfried Russwurm, BDI President

BDI: Ukraine war exposes Achilles' heel

Germany is still dependent on Russian gas and other raw materials.

Russia had cut gas supplies through the Nord Stream pipeline in the Baltic Sea.

Russwurm said the war revealed Germany's "Achilles heel" as an industrial country: security of supply for energy, raw materials and basic technologies.

Russwurm expects the economy to recover in the sense of a return to the level before the corona pandemic at the end of the year at the earliest.

The prerequisite, however, is that Russian gas continues to reach Western Europe.

"An interruption would have catastrophic effects on the manufacturing industry and would inevitably send our economy into recession."

BDI: order backlog at record high

The company's order backlog is at a record high.

However, due to delivery bottlenecks, production is sometimes significantly affected.

Uncertain economic prospects and increased uncertainty due to the war also slowed companies' investment activity.

The BDI also corrected the prospects for exports downwards.

Growth of 2.5 percent is now expected for 2022, in January the association had predicted an increase of 4.5 percent.

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Chancellor Olaf Scholz (SPD) and, among others, Finance Minister Christian Lindner (FDP) and Economics Minister Robert Habeck (Greens) were expected at Industry Day on Tuesday.

Russwurm once again welcomed Habeck's plans to reduce gas consumption in industry.

Instead, more coal is to be converted into electricity.

Gas as a "bridge" is necessary, but this bridge will become more expensive.

The hope is that it will also be shorter.

Renewable energies would have to be expanded more quickly, and the brakes would have to be released for this.

BDI rejects state energy saving requirements for private households

The BDI President spoke out against possible legal obligations for private households to reduce gas consumption.

He said he thought proposed premiums would make sense for consumers to save on gas.

In view of demands from the Union, for example, for the three remaining nuclear power plants in Germany to run longer than the end of the year, Russwurm was skeptical.

The operators themselves would have contradicted this.

On the other hand, it is difficult to ask other countries to increase their gas production, but to rule this out in Germany.

This is a difficult argument.

The initiative came from the FDP to put the ban on natural gas production in Germany through so-called fracking to the test.

Gas or oil is extracted from rock layers with the help of pressure and chemicals, which poses dangers for the environment.