Europe is facing a “severe recession,” and Germany doesn’t have a source of energy as its industry begins to collapse. Their industry was thriving only months ago. This is a completely manufactured, self-imposed crisis.
Europe will spiral into a severe recession as the shortage in energy supplies is set to spike inflation even higher and weigh heavily on Europe’s GDP, BlackRock said in a note on Monday.
“The energy crunch will drive a recession in Europe, as we’ve argued since March. The crisis has worsened since then as Russia has halted gas supplies,” analysts warned, pointing to the indefinite cutoff of flows from Russia’s Nord Stream 1 pipeline.
Eurozone inflation reached 9.1% in August, causing the European Central Bank to issue its first-ever 75-point rate hike last week to control prices.
That is an economy crusher.
“The European Central Bank isn’t acknowledging how it will crush activity further by trying to fight high inflation, in our view. We think the ECB will wake up to this sooner than markets expect – but not before it inevitably faces a severe recession,” BlackRock said.
Analysts expect it to remain hawkish through the end of the year and said the ECB’s downside scenario of a 0.9% contraction in the economy is looking more likely.
The winter will be tough without Russian oil and gas.
The EU has built up gas reserves to more than 80% of capacity, but they’ve never gone through a winter surviving only on reserves. And what happens after that?
GERMANY CROSSED THE RUBICON?
Moscow’s ambassador in Berlin, Sergey Nechaev, said on Monday that Germany had crossed the Rubicon after decades of reconciliation.
“The very fact that the Ukrainian regime is being supplied with German-made lethal weapons, which are used not only against Russian military service members, but also the civilian population of Donbas, crosses the red line,” Ambassador Sergey Nechaev said in an interview with Izvestia newspaper.
He added that Berlin should have known better, “considering the moral and historic responsibility that Germany has before our people for the Nazi crimes.”
“They have crossed the Rubicon,” Nechaev stated, using an idiom for passing the point of no return.
Germany is the biggest loser in this. They get half their energy from Russia.
GERMAN INDUSTRY IS IN DIRE STRAITS
The biggest challenge the German industrial sector currently faces is posed by rising energy costs, The Economist reported on Sunday, citing the association of German industry BDI.
“The substance of our industry is under threat,” BDI President Siegfried Russwurm said as quoted by the media, adding that the situation was looking “toxic” for many businesses.
According to the association, the electricity price for next year has already increased fifteenfold, and the gas price tenfold. In July, the country’s industry, forced to reduce production capacities, reportedly consumed 21% less gas than in the same month in 2021.
Smaller companies are struggling more than bigger ones, according to a study by the consulting company FTI Andersch, as cited by the media. Some 25% of firms with fewer than 1,000 employees were forced to cancel or decline orders or are planning to do so, compared with 11% of those with over 1,000 employees.
Almost 10,000 bread manufacturers are reportedly struggling as never before in post-war Germany, as the cost of the electricity and gas needed to heat ovens and run kneading machines have increased enormously.
If energy prices remain high for a while, up to 3% of Germany’s energy-intensive businesses will relocate abroad, according to Holger Schmieding, the chief economist of private bank Berenberg.