200 billion euros more for energy: Germany is threatened with recession
Created: 09/01/2022 09:29
By: Prof. Dr.
Sebastian Dullien
Prof. Sebastian Dullien is head of the Düsseldorf Institute for Macroeconomics and Business Cycle Research (IMK).
© N. Bruckmann/M.
Litzka/dpa
In the face of rapidly rising energy prices, Germany is facing a gigantic macroeconomic shock.
Because of the rise in gas prices alone, private households are missing around 80 billion euros.
This threatens Germany with a consumption-driven recession, writes the director of the institute for macroeconomics and business cycle research (IMK), which is close to the trade unions, Prof. Sebastian Dullien in the guest article.
As the statistics office Destatis reported this week, inflation picked up again in August.
Consumer prices rose by 7.9 percent year-on-year.
The most recent increase is only the harbinger of an even stronger price surge in the coming months.
The main price drivers are the prices for energy and especially natural gas, and in wholesale there are indications that households are threatened with further sharp price increases for gas.
A megawatt hour of natural gas was last traded at more than 200 euros on the stock exchange.
Given the usual costs for the distribution network and the sale of natural gas, this corresponds to an end customer price of around 30 cents per kilowatt hour.
At the moment, however, German households are only paying around 12 cents, which almost corresponds to a doubling within twelve months.
If the wholesale prices are passed on completely by the utility companies, this means that heating costs are likely to increase almost fivefold compared to 2021.
voice of economists
Climate change, supply bottlenecks, corona pandemic: Rarely before has interest in the economy been as great as it is now.
This applies to current news, but also to very fundamental questions: How do the billions of euros in Corona * aid and the debt brake go together?
What can we do about the climate crisis without jeopardizing our competitiveness?
How do we secure our pension?
And how do we generate the prosperity of tomorrow?
In our series Voice of the Economists, Germany's leading economists provide guest contributions with assessments, insights and study results on the most important economic topics - profound, competent and opinionated.
Always on Wednesdays and Saturdays.
German economy threatened with gigantic shock
The surge in prices for private households is only part of the problem: rising energy prices are threatening the German economy with a gigantic macroeconomic shock in the coming months.
The shock was basically post-Ukraine invasion, but it only materialized in full in recent weeks after Russia cut gas supplies in July.
You get an impression of the magnitude of the burden if you estimate Germany's net import bill for fossil fuels.
In 2019, Germany paid around 50 billion euros for the import of natural gas, petroleum products and coal.
At current prices, around 280 billion euros would be due for the same quantities in 2023, more than 200 billion more than before the corona pandemic.
Since this money goes abroad, German companies, private households and the state have to raise this sum together.
To put this into perspective: The additional invoice amount corresponds to around 5 percent of German economic output.
more on the subject
Climate protection: how fossil fuel inflation puts the ECB under pressure
More and more regulations: Against Gulliver's syndrome
Gas crisis reveals the dirty secret of the German energy transition
Gas price increase costs private households 80 billion euros
In the case of the increase in gas prices alone, around EUR 80 billion of this burden is likely to have a direct impact on private households – in the form of higher gas bills.
For households with gas heating, this quickly adds up to a net monthly salary.
This burden is then compounded by the recently also rapidly rising prices for electricity and food.
Many households will only be able to absorb these burdens by reducing their consumption elsewhere - Germany is therefore threatened with a consumption-driven recession very soon.
Of course, we don't know exactly how quickly the shock hits.
The actual gas import price, for example, follows the exchange prices with a slight delay, and the suppliers also do not immediately pass on the price increases to the end customer.
But whichever way you look at it: If stock market prices remain high, the shock will come sooner or later, and the shock threatens to be huge.
In order to avoid a social crisis, the traffic light must be improved quickly when it comes to aid
The measures announced so far by the federal government are not enough to compensate for this: the relief packages passed in the summer have compensated for a noticeable part of the previous burdens from 2022 for many households.
However, the burdens that are now to come are not yet covered at all.
The income tax relief proposed by the Ministry of Finance so far has a volume in the single-digit billion euro range - a drop in the bucket.
If an economic and social crisis is to be avoided, it has to be done properly again.
And that fast.
About the author:
Prof. Dr.
Sebastian Dullien is Scientific Director of the Düsseldorf Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation and Professor of Economics at the Berlin University of Applied Sciences.