Germany’s economy defies the odds as winter rolls around

Germany’s energy-intensive sectors, from chemical giants and other major exporters to local businesses, have been hit hard by rising inflation and energy costs. Bakery owners, for example, have seen their electricity bills double, and there have been similar increases in the prices of butter, flour, and other staples needed to run their businesses.

But an expected drop in inflation is helping confidence. After advancing at the fastest pace since the 1950s in recent months, Germany’s annual consumer price growth is forecast to have slowed to 9.9% in November from 10.4% in October.

“So far so good,” said Ori Kidron, owner of a family-owned bakery and cafe in a trendy area of ​​central Berlin.

“You need a lot of flexibility. You have to distinguish yourself from other companies,” Kidron said of staying afloat and attracting customers who are still cautious about spending post-pandemic and post-energy crisis. “That has helped us survive,” he said.

And Kidron is hopeful about next year.

“I am optimistic. It’s a winning strategy,” he said, referring to his plans to increase production of high-quality products and open another cafeteria-bakery, as well as rebrand his business.

General business confidence is rising in Germany, according to the Ifo Institute, and the latest closely watched survey of 9,000 executives shows rising expectations of better economic conditions six months from now.

“Hope is back,” said ING Bank economist Carsten Brzeski.

However, a mild recession seems inevitable. Yet economists who forecast a 1.6% contraction in growth less than three months ago now project a fall next year of just 0.6% or less.

“We had expected gas rationing, but thanks to high levels of gas storage and reduced gas consumption, rationing is now highly unlikely this winter,” said Marc Schattenberg, a senior economist at Deutsche Bank Research. “This is the biggest change to our forecasts.”

“So the outlook for the manufacturing sector has improved a bit and order book levels remain favourable,” he said, though Deutsche Bank is less optimistic than others, forecasting a 1 percent contraction in growth next year.

A rebound in confidence, combined with a drop in monthly import prices and a strong labor market also helped set the stage for a rebound in Germany’s main eurozone trading partners late next year. Germany accounts for 28 percent of the eurozone economy.

“For both Germany and the eurozone, next year could be characterized by a subdued recovery due to rather ‘stagflationary’ dynamics,” Schattenberg said, with German imports from Europe driven by orders for LNG and other energy products, but with manufacturing exports battling supply chain bottlenecks.

To a large extent, however, the scale of Germany’s winter recession could fall on the nation’s beleaguered consumers.

Gasoline prices for the average German family were still 134 percent higher in October compared to the same month last year, according to the Check24 price portal. Another strong increase is expected in January due to supply cost delays. More than half of German residences depend on gas for heating.

Still, the GfK research institute said this month that its forward-looking consumer confidence indicator is set to rise in December from the record low reached in October.

Leave a Reply

Your email address will not be published. Required fields are marked *