Energy Prices Trigger Deindustrialization In Germany
German factories are struggling to cope with soaring energy costs, which may prompt many to leave the country for a cheaper location, Bloomberg has reported, citing industry sources.
"Energy inflation is way more dramatic here than elsewhere," Ralf Stoffels, chief executive of BIW Isolierstoffe, a silicon parts supplier to a range of industries. "I fear a gradual deindustrialization of the German economy."
Energy prices in Europe's biggest economy and the EU's powerhouse hit a record earlier this week, with the year-ahead price per MWh reaching 530.50 euro, or $534.45.
"The longer these price rises go up, the more this will be felt across the economy," Daniel Kral, Oxford Economics senior economist, told Bloomberg. "The magnitude of the increase and magnitude of the crisis isn't comparable to anything in the past few decades."
The struggle is real for all industrial users, and it has become too much for some. For example, two aluminum smelters in Europe have been forced to shut down their operations because of excessive energy prices: one in Slovakia and one in the Netherlands.
German companies have also been warning that some of them might have to shut down if prices remain high or keep rising. In fact, earlier this year, the country's economy minister himself warned that some industrial gas consumers might become casualties of the energy crisis.
"Companies would have to stop production, lay off their workers, supply chains would collapse, people would go into debt to pay their heating bills, that people would become poorer," Robert Habeck told German media in June in comments on reduced Russian gas flows to Germany.
German utilities have been quick to stock up on LNG to fill storage caverns ahead of winter, but this will not be enough to shield Germany from the energy crunch. It will also have zero effect on price trends as the LNG bill has been much higher than Germany's usual pipeline gas bill.
Energy Inflation Threatens Thousands Of UK Businesses
Thousands of small and medium businesses in the UK are finding it increasingly hard to keep the lights on as energy prices continue to rise.
Earlier this week, official data showed UK inflation had reached a four-decade high of over 10 percent. This has affected consumer spending, which these businesses depend on for survival.
It is going to get worse, too. The Bank of England forecasted that consumer price inflation will reach 13.3 percent in October, CNBC reported today. The report cited a new survey showing consumer confidence had fallen to the lowest on record.
“While the energy price caps do not apply to businesses directly, millions of small business owners are still experiencing increased energy bills at a time when costs are rising in most operational areas,” a UK insurance executive told CNBC.
“Simultaneously, consumer purchasing power is going down as Brits cut back on non-essential spending, harming the books of SME [small and medium-sized enterprise] owners.”
The energy cap that the executive referred to is a ceiling on energy prices that gets revised twice a year to reflect wholesale energy prices. The latest revisions have been bad news for Britons, promising to raise their average annual electricity bill by the pound equivalent of more than $5,000 in the first quarter of 2023.
City A.M. reported earlier this month that at least half of the current inflation rate in the UK is the direct result of soaring energy prices, which have fuelled a cost-of-living crisis that the government is struggling to contain.
In July, a survey showed that as much as 82 percent of British businesses saw inflation as a growing concern. Now, the number is probably even higher as energy inflation remains excessively high, driving all other prices higher, too.
“Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labor,” said the head of research for the British Chambers of Commerce that conducted the survey in July.
By Irina Slav for Oilprice.com
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