How and how much the expensive energy will weigh on Germany’s GDP
For 2022, the Ifo estimates a real income loss of around 64 billion euros in Germany, equal to 1.8% of economic output. Pierluigi Mennitti's article
Rising gas and oil prices are sucking billions of euros out of the German economy. This is the content of the latest report published by the Ifo, the Munich economic research institute, one of the most authoritative centers in Germany, which estimates the total figure in the three-year period from 2021 to just under 110 billion euros. (year in which prices started to surge) to 2023.
The German economy is in an energy crisis, the Ifo writes, and the new report shows that price-adjusted gross domestic product currently significantly underestimates the associated macroeconomic costs. The reason, Munich analysts explain, is that a sizeable portion of real income as measured by gross domestic product is flowing out to foot the bill for the sharply rising imports of natural gas and oil.
We come to the numbers. For the current year, the Ifo Institute estimates a real income loss of around 64 billion euros, equal to 1.8% of economic output. Last year it was already 35 billion euros, or 1.0%. "Next year, another 9 billion euros will probably be added, equal to 0.2% of economic output," said Timo Wollmershäuser, who is responsible for economic forecasts at the Bavarian institute.
Negative data that photograph the new scenario in which Germany has fallen with Putin's decision to move his troops towards Ukraine: a decision that has aroused a very harsh reaction from the West, so much so as to modify and overturn the economic and energy balances that in he last twenty years had created the perfect conditions for the particular – but evidently fragile – second German economic boom (after that of the 1950s-1960s). Wollmershäuser deepens and details the numbers of the débâcle. “Overall, the loss of real income amounts to just under 110 billion euros, equal to 3% of the economic output of a year”.
They are comparable to those of the great energy crisis that in the 1970s interrupted the first economic boom (not only in Germany), opening a long phase of uncertainty that then overflowed from the economic level to the social and political one. "Only during the second oil price crisis, between 1979 and 1981, was the percentage of real income loss even higher, equal to 4% of GDP", Wollmershäuser resumes: "According to our calculations, in fact, the first oil price crisis, that of 1973/74 had cost less, 1.5% of the gross domestic product ”.
The overall loss of purchasing power in the years 1979 to 1981 was only offset in 1986, when there was a sharp drop in oil prices and at the same time the Deutsche Mark appreciated significantly against the US dollar. This time too, the recovery will take time: "The current decline in real income will probably continue over the next few years", explained the IFO expert, "on the one hand, energy prices will remain permanently high with the loss Russia as a supplier, on the other hand Germany's dependence on energy imports will not change anytime soon ”. On this point it is useless to have too many illusions. The progressive construction of the new floating regasifiers (the first two could start operating as early as this winter) will help to mitigate the thirst for sources, but they will not be able to fully replace the gas that arrived from the Nord Stream 1 pipes, in addition to the fact that the the entire floating terminal complex will be completed no earlier than 2025 and that liquid gas will cost much more than Russia's. As for the impulse of green sources, it is enough to look at the slowness with which the expansion of wind farms is proceeding, especially the onshore one, to understand the alarm of all network operators that the real winter of the emergency will not be what we are going to. meeting but the next.
To return to the IFO data, Wollmershäuser underlines how the quantification of real income losses towards foreign countries is important in all discussions on distribution because – he explains – they represent the part of the economic production produced in Germany that must be transferred abroad. to pay the import bill and cannot be distributed internally: "For example, wage negotiations must take into account the fact that the high prices of goods and services produced in Germany are not the result of a boom that drives up profits of companies. They mainly reflect the high costs that have to be paid for imported energy and intermediate products. The income to be distributed between workers and entrepreneurs must therefore be corrected for real income losses ”.
For Bavarian economists, the idea that the new state interventionism can mitigate all inconveniences is also wrong and can create dangerous illusions and even serious financial strategy errors. “State support measures cannot change the extent of real income loss. They can only influence the share that individual population groups have to bear ”, warns the Ifo. He then adds, more as a warning than an analysis: “And for example, they can transfer losses over time to future generations, if the measures are financed with debt or with less investment”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/prezzi-energia-conseguenze-pil-germania/ on Wed, 09 Nov 2022 06:42:03 +0000.