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German industry permanently damaged from energy crisis, RWE boss says

rwe chef markus krebber scaled - Moldova Invest


German industry permanently damaged from energy crisis, RWE boss says

Forumul Economic Regional Moldova 2024 – Vatra Dornei, 4–6 iulie

The German industry prospered in part due to its close energy trading ties with its adversary Russia. Recent events have exposed the folly of this relationship, as Russia’s invasion of Ukraine disrupted Germany’s crucial and affordable gas supply.

A prominent figure in Germany’s renewable energy sector, Markus Krebber of RWE, has suggested that this could be a mistake with lasting consequences, as the fallout from the energy crisis threatens to permanently harm German industry.

Krebber, speaking to the Financial Times, highlighted that Germany’s gas prices remain structurally higher than in other parts of Europe due to its reliance on liquefied natural gas imports. Prior to the invasion of Ukraine, Germany sourced 55% of its natural gas from Russia, alongside significant imports of oil and coal.

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Although Germany has substantially reduced its dependence on Russian gas since the invasion, cutting imports by 32.6% in 2023, it remains heavily reliant on energy imports from other nations, leading to pricing challenges for its struggling economy. Krebber predicts enduring repercussions for German industry, foreseeing significant and lasting damage.

Since the invasion of Ukraine, Germany has witnessed an unexpected economic slowdown, with its once-vibrant industrial sector now faltering. The country teeters on the edge of a technical recession, with a contraction of 0.3% in 2023 and a grim outlook for 2024, as GDP growth forecasts are slashed from 1.3% to 0.2%.

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The decline of Germany’s energy-intensive industries has been particularly pronounced, with the construction sector’s Purchasing Managers Index (PMI) steadily decreasing since early 2022, and manufacturing facing a downturn since mid-2023. Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, notes a broad-based recession across various sectors, exacerbating concerns about Germany’s economic health.

The possibility of Germany reverting to its former status as the “sick man of Europe” has become a topic of debate, as spiraling energy costs and a scarcity of skilled labor threaten its economic stability. Despite pushback from the Bundesbank, which argues that Europe as a whole is at risk, Deutsche Bank’s CEO Christian Sewing warns of Germany assuming this unwanted title once more.

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In response to Germany’s economic challenges, several German companies, including RWE, have redirected investments to the United States, attracted by favorable conditions such as Joe Biden’s Inflation Reduction Act (IRA), which provides substantial subsidies to incoming businesses. Major automakers like Volkswagen and Mercedes-Benz have increased their commitments in the U.S., while RWE has established a new U.S. arm, RWE Clean Energy, and earmarked $15 billion for investments in its U.S. operations.

Krebber highlights the disparity between the U.S. and Europe in incentivizing manufacturing, pointing to the need for more comprehensive policies in Europe to attract and retain businesses.

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