Businesses could jump ship in German recession


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Berlin,
Aug
07:

For
the
fifth
month
in
a
row,
German
factories
received
fewer
orders
for
their
products.
In
June,
orders
fell
0.4%
compared
with
May.
Though
a
minor
decline
at
first
glance,
that
adds
up
to
a
5.6%
decrease
for
the
second
quarter
of
2022.

Businesses could jump ship in German recession

Because
of
the
bottlenecks
in
global
supply
chains,
German
industries
still
have
a
high
order
backlog,
but
not
enough
to
protect
them
from
the
upcoming
economic
hardship,
Commerzbank
chief
economist
Jörg
Krämer
told
DW.
“The
risk
of
a
recession
is
increasing,”
Krämer
said.

That
sentiment
is
shared.

The
German
investment
company
DekaBank
projects
a
technical
recession

a
period
of
significantly
reduced
economic
activity
that
can
last
for
months.
“It
is
possible
that
the
recession
stretches
from
the
fourth
quarter
of
this
year
into
the
second
quarter
of
next
year,”
said
Andreas
Scheuerle,
the
head
of
industry
analysis
at
DekaBank.

A
decline
in
industrial
output
is
just
a
symptom
of
a
difficult
economic
situation.
There
are
several
reasons
why
German
businesses
are
facing
a
slump.

‘No
tight
rationing’

The
current
high
inflation
rates
continue
to
erode
consumer
purchasing
power.
“People
can
no
longer
afford
to
buy
as
much
as
they
did
before
and
perhaps
no
longer
want
to
do
so,”
Scheuerle
said.
There
is
also
great
uncertainty
as
to
what
additional
costs
might
arise
from
the
high
energy
prices
caused
by
the
war
in
Ukraine
and
the
gas
levy.
A
report
by
the
Nuremberg
Society
for
Consumer
Research
(GfK)
found
the
German
buying
mood
diminished
as
of
the
end
of
July.

Additionally,
the
global
economy
is
suffering,
affecting
overseas
markets.
In
the
United
States,
one
of
the
most
important
sales
destinations
for
German
industry,
inflation
rates
are
so
high
that
the
Federal
Reserve
is
raising
interest
rates
much
faster
than
the
European
Central
Bank,
pushing
people
and
businesses
to
spend
less.
The
unclear
prospect
of
gas
supply
is
making
things
more
difficult
for
businesses.
“There
will
probably
be
no
tight
rationing
this
winter,”
Scheuerle
said.
But
companies
might
try
to
reduce
their
gas
consumption
by
cutting
back
on
production
more
than
they
would
in
a
regular
winter.

Businesses could jump ship in German recession

COVID-19
infection
rates,
too,
will
likely
surge
this
winter.
Scheuerle
said
Germany
was
unlikely
to
introduce
lockdowns
anymore.
However,
he
said,
“you
can
always
expect
that
a
city
or
port
in
China
will
temporarily
close.”
Beijing
continues
to
follow
a
strict
zero-COVID
policy,
with
disruptive
effects
on
supply
chains.
If
an
important
location
in
China
goes
into
quarantine,
Scheuerle
said,
the
economic
impacts
might
appear
the
following
spring.

Businesses
paralyzed
by
fear
of
gas
prices

German
businesses
are
less
confident
about
the
economy
and
the
prospects
of
growth.
Companies
are
expecting
business
to
become
much
more
difficult
in
the
coming
months,
according
to

the
Business
Climate
report
,
published
by
the
Ifo
Institute
for
Economic
Research.

These
trends
indicate
that
Germany
is
facing
a
“tangible
risk
of
a
recession,”
Krämer
said.
“After
all,
Putin
keeps
playing
with
the
gas
tap
and
fueling
the
fear
of
a
gas
crisis.”
By
doing
so,
Kremlin
wants
to
demoralize
the
German
public,
he
added.
“This
psychological
war
over
gas
is
unsettling
companies
and
makes
them
more
cautious
when
ordering,”
he
said.
Some
customers
have
canceled
or
postponed
their
orders.
This
would
gradually
use
up
the
large
order
backlog
that
had
provided
a
safety
cushion
for
industries
over
the
past
two
years.

A
recession
seems
inevitable.
It
is,
however,
unlikely
to
be
as
severe
as
the
2008
recession
preceded
by
the
bankruptcy
of
Lehman
Brothers
or
the
economic
downturn
that
happened
in
the
first
months
of
the
coronavirus
pandemic.

“The
German
economy
could
shrink
by
a
maximum
of
0.4%,”
Scheuerle
said,
adding
that
the
rebound
would
not
be
as
strong
afterward.
This
is
partly
because
the
problem
of
gas
shortage
will
probably
keep
challenging
businesses
until
winter.
That
could
push
at
least
parts
of
German
industry
to
relocate
their
production
abroad

to
places
where
energy
is
cheaper
and
produced
domestically.
The
current
hurdles
may
therefore
lead
to
long-term
structural
changes
in
the
economy.

Source: DW



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