Energy cost crisis hits companies differently across German states

High energy prices are hitting companies unevenly across Germany’s 16 states due to the composition of regional economies, state-owned development bank KfW found in an analysis. “The energy crisis will likely hit the company landscape in each state to varying degrees,” KfW said, explaining that cost factors differ especially for small- and medium-sized companies (SMEs) in the German ‘Mittelstand’. Before the start of Russia’s war on Ukraine – which fuelledthe European energy crisis – energy costs for SMEs stood at just under 6 percent of total revenue and on average were “mostly manageable,” KfW said. Differences in the economic structure of the states, depending on factors such as company size, export orientation and sector, mean that the share varies from state to state, with companies in the northern states Hamburg and Schleswig-Holstein having a much lower energy cost share (4%) than those in neighbouring Mecklenburg-Western Pomerania (9%) and central Thuringia (6.5%). 

The energy crisis caused by a cut of Russian fossil fuel deliveries to Europe as a result of the war in Ukraine has raised fears about a looming deindustrialisation in Germany, where manufacturing still accounts for a large share of economic output and jobs. While the country so far seems to have avoided its worst-case scenarios of a deep recession in 2023, observers warn that its strong industry and manufacturing sector is under threat in the long run if energy prices remain high. Companies and state governments aim to reduce the effect energy costs have on growth by investing in efficiency and renewable power alternatives.