German govt sees signs of slight economic upturn, energy-intensive industry production increases

The German economy ministry sees "signs of a slight economic upturn" in the country as energy-intensive industries have expanded their production since the beginning of the year. "Electricity and gas now cost around the same on the wholesale market as before the energy price shocks [and] inflation is therefore continuing to fall," economy minister Robert Habeck said. "This boosts people's purchasing power and supports recovery in private consumption." The government adjusted its economic growth forecast for 2024 only slightly from 0.2 percent in a report from February to 0.3 percent, and expects 1 percent growth next year. "0.3 percent is of course not something we can be satisfied with," said Habeck. "Despite the signs of hope, I am still concerned about the structural problems of Germany as an economic location," Habeck said, calling for strengthening innovation, reducing bureaucracy and tackling the labour shortage.

A string of crises in the past years, including the Covid-19 pandemic and the energy crisis – exacerbated by Russia's war against Ukraine – have put a damper on Germany's economic development and highlighted structural issues, such as the lack of skilled workers. Record-high energy prices, particularly for natural gas, had impacted the economy as a whole, in which energy-intensive industry still plays a key role. Overall, since their peak in 2022, prices have decreased almost to pre-crisis level. However, fossil gas remains more expensive compared to before the crisis, when Russia supplied the largest share of the country's gas demand. Chancellor Olaf Scholz recently had defended his government's efforts to navigate the energy crisis against critcisim from industry leaders. Scholz said energy prices by and large had dropped back to pre-crisis levels after "two turnaround years" during which the country transformed its energy import structure, especially regarding natural gas. This had helped make the country as competitive regarding energy prices as it had been "for decades," the chancellor said.

A report by the Potsdam Institute for Climate Impact Research (PIK) said given the fact that some countries have much better conditions for renewable electricity generation, production of key energy-intensive industrial commodities – such as steel, urea and ethylene – could benefit from cost savings if relocated to such regions. However, the cost of energy is just one of many factors behind companies’ relocation decisions.