German factories weigh decreasing production, recession on the horizon
With fears of putting Russian gas to a halt in Germany, German companies contemplate cutting down production or stopping operations completely.
On Monday, the Financial Times reported that industrial companies across Germany are facing the possibility of scaling down operations or shutting down completely if Russia were to put natural gas flows to a halt.
ThyssenKrupp, Germany's largest steelmaker, in addition to the world's largest chemicals company, BASF, have both warned that without enough gas supply, factories will be forced to become idle or shut down completely, and could even suffer technical damage.
“[Without Russian gas supplies,] we have to stop [production] immediately, from 100 to zero,” said Petr Cingr, the chief executive of SKW Stickstoffwerke Piesteritz, Germany’s largest ammonia producer and a key European fertilizer supplier.
This warning comes in the midst of uncertainty regarding Russian gas supply, as Gazprom, Russia's most prominent gas company, slashed its gas deliveries by 60% through the Nord Stream 1 pipeline last month over a technical issue.
The maintenance will finish on July 21. However, there are anxieties in Germany and the EU that Russia won't be returning the flow back once the maintenance is done.
According to FT, some companies hope to switch to alternative fuels, such as heating oil or coal, especially if Russia won't be delivering gas. However, only 2-3% of gas consumption can be replaced this way.
Without Russian gas, Berlin will have a severe industrial output declination, which will essentially result in a recession, with a 6% GDP fall by the end of 2023, according to analysts at UBS, a Swiss bank.
Over the past 18 months, in addition to prospects that gas supplies will halt, natural gas in Europe has increased eight times in price, which has significantly increased the cost of living in Europe.
Last month, Berlin suggested the second stage of its national emergency plan, which will introduce gas rationing.