Especially in Germany, how does the energy crisis lead the European industry to its nadir?

The European economy has been faltering for weeks under the successive blows of the energy crisis, which in turn affects the industrial sector in depth, pushing it towards a recession that the continent has not witnessed before. Especially in Germany, where a number of factories are closing and large groups of workers are being laid off.

It has become clear that the European continent is heading towards an economic recession, as indicated by opinion polls last September, which showed an exacerbation of the cost of living crisis in the whole of the Union, as well as a bleak outlook for the future, which makes consumers anxious about spending.

This is at a time when inflation in the continent is growing month after month, reaching extreme levels during the summer, as it touched the 9.1% threshold. This puts the European Bank under increasing pressure, thwarting all its efforts to control inflation, as it promised at the beginning of the year to keep it at 2%.

According to a number of experts, European inflation rates will continue to rise, as they expected "a new rise in prices for consumer goods, and the average of these expectations was about 9.7%, with expectations for 4 results consisting of two numbers, that is, higher than 10%." .

It is therefore the economic conditions that define the European energy crisis, following the continent's loss of its main energy resource as a result of the Ukrainian war. The industry sector is the most affected by this situation, as it kills it, prompting a number of manufacturers to transfer their businesses to other countries.

European industry troubles

The energy demand of the industrial sector in Europe represents 30% of the total continental demand. According to the statistics of 2019, the chemical and petrochemical industries are at the top of the order of industrial energy consumption, followed by metal industries, then steel and iron industries, as they collectively consume 20% of energy imports in the old continent.

On the other hand, energy prices continue to skyrocket, reaching a peak in August of 300 euros per megawatt-hour, after it did not exceed 200 euros per megawatt-hour at the beginning of this year, and 30 euros per megawatt-hour before that. This kills the industrial sector, by raising production costs to unprecedented levels.

This is in addition to the energy austerity policies announced by the European Union, last August, in the form of a plan to reduce gas consumption by "at least" 15%. This austerity affected the factories as well, and forced them to reduce production and lay off a number of workers who were operating the lines that became idle.

In many industries, such as fertilizer industries, gas is not only a source of energy but an essential raw material. On the ground, these companies are in double trouble, explains Sven Holster , CEO of Norwegian Fertilizer Yara: “If you take urea (a product manufactured in its factories), for example, when we decided to shut down, it cost us $2,000 a ton to produce it. While it sells for $800. The same ton costs $200 to produce in the United States and $100 in Russia."

The biggest competitive shock

As explained by the head of the "Yara" fertilizer company, these economic conditions are killing the competitiveness of the European industry. Be it on the external or internal level. This is clearly evident in the large imbalance in the European trade balance.

Analysis of European trade transaction data for August reveals that the EU's industrial trade surplus has nearly halved this year. The eurozone's trade deficit in the same month, according to Eurostat figures , amounted to 50.9 billion euros, compared to a surplus of 2.8 billion euros in the same period in 2021. This is the highest deficit ratio ever recorded.

In the same August, the eurozone's current account balance, which aggregates total trade in goods and services as well as international capital transfers, saw a deficit of €26.32 billion driven largely by the trade deficit in goods, according to the European Central Bank. .

Thus, higher production costs and lower sales force European manufacturers to close their factories and leave the continent. This was done by the manager of the company "Yara", who suspended all its operations in Europe and laid off more than 7,000 workers. In what Robin Brooks, chief German economist at the Institute of International Finance (IIF), described it as "the biggest competitive shock in Europe since the 1980s".

In Germany

Germany is one of the largest industrial countries affected by these conditions, according to a recent survey conducted by the Ifo Institute for the German business climate, more than 68% of German manufacturers complained of stifling supply chains, and retail sales expectations fell to a new record level, which made the institute expect that it will witness The country is in recession by winter.

According to other surveys, one out of every eight industrial companies in Germany is considering closing its factories. While the most affected are the smaller companies, which was explained by the researcher at the Ifo Institute, Johanna Garnitz, to the German "The Local" website , due to this because "the smaller the company, the less procedures are started."

According to these data, the threat of bankruptcy of these companies is expanding, which is confirmed by a study by Alliance Trade, which monitored the increase in the number of companies that are expected to declare bankruptcy during the year 2023 to 16100 companies, which is approximately 40% of the total German companies.

According to the Vice-President of the Confederation of German Industries, Volker Trier, "there is a threat that Germany may lose a large number of companies, especially from the industrial sector, and some even talk about the possibility that Germany will not be an industrial country in the near future, knowing that what constituted Germany's strength until today It is an industrial country.