Further gas supply cuts are “main risk” for German economy – econ min

The economic outlook for the second half of 2022 is worsening due to reduced gas deliveries, further increase in energy prices, continuing supply bottlenecks and a general increase in uncertainty, the German economy ministry said in its monthly report on the country's economy. “Above all, the reduced gas supplies from Russia are depressing sentiment and a further curtailment represents the main risk for future economic development,” the ministry warned. Overall, however, the first half of the year “showed a solid performance in which the German economy demonstrated some resilience,” the government said.

In new calculations from the Federal Statistical Office (Destatis), gross domestic product (GDP) was corrected noticeably upwards in the first quarter and grew robustly. This level was maintained in the second quarter, the economy ministry confirmed. The ongoing high inflation is mainly driven by energy and food prices, it added. The inflation rate fell slightly from June to July for the second time in a row to 7.5 percent (from 7.6 percent in June). The reduction of the energy tax on fuels including petrol, diesel and heating oil, the nine-euro ticket for public transport and, since July, the abolition of the renewables levy have slightly dampened price increases, the ministry said.

Germany and Europe are grappling with the impact of Russia’s war against Ukraine on their energy supply and therefore on their economies as a whole. In the weeks after the start of the war, chancellor Scholz warned that a sudden halt in energy imports from Russia would threaten "hundreds of thousands of jobs" and throw Germany and Europe’s economies into recession. Industry and businesses have also sounded the alarm about how a cut of Russian gas – or rising prices – threatens their competitiveness. Across Europe, rising energy prices have become a key driver of inflation that is only just starting to strain households, particularly low- and mid-income ones.