German gas plans could cause “structural damage” to their industrial position, Deutsche Bank warns


Germany risks “structural damage” to its status as a global industrial powerhouse if it pushes gas rationing in the face of war in Ukraine, one of its top banks has warned.

A transition to “stage three” of the country’s emergency gas plan would result in an accelerated decline in investment and the deterioration of industrial assets, said Eric Heymann, an analyst at Deutsche Bank.

Economics Minister Robert Habeck launched the first stage of the German gas emergency plan last Wednesday.

It came after Russia threatened to halt gas supplies to Germany after Berlin rebuffed Vladimir Putin’s demands that “unfriendly” countries should make payments in rubles.

Europe’s largest economy has already asked citizens to voluntarily reduce their energy consumption.

If the plans escalate to the third stage after a “significant disruption” in supply, the state will step in and effectively ration remaining gas supplies.

The Bundesnetzagentur, the German network regulator, would take responsibility. Households and critical facilities such as hospitals would be largely prioritized, meaning industrial supplies could be curtailed.

Then investments would “collapse sharply,” warned Heymann.

“Especially in energy-intensive industries, the willingness to invest is likely to fall further in the long term, because security of supply has so far been a great asset in Germany,” he said.

“If this can no longer be guaranteed, there is a risk of structural damage in Germany
as an industrial location.”

That would accelerate the decline in capital stock — like factories — in the country’s energy-intensive sector, he added.

Under such circumstances, the national debt would also rise, Heymann said, and the nationwide saving rate would likely rise as cautious Germans prefer to save rather than spend.

Economists have lowered their forecasts for German growth this year as the country faces the brunt of the inflationary impact of Western sanctions on Russia.

Inflation in the country hit an annual rate of 7.6 percent in March, the highest since reunification and just above the 7.5 percent rate for the euro zone as a whole.

Carsten Brzeski, chief eurozone economist at ING, said the war in Ukraine was “much more of a structural turning point” for Germany than the pandemic.

“Government programs will mitigate the negative effects of war but will not prevent stagflation,” he said.

“The only bright spot for the German economy in our baseline scenario is that the pressure on the economy and the entire economic model will accelerate the green transition.”

He added: “Finally, the urgent and urgent need to fundamentally change the economy’s business model could be the long-awaited boost to structural international competitiveness. From today’s perspective, however, it will only get worse before it gets better.”

Moscow backtracked on Putin’s ruble threat on Friday and said it would not immediately turn off Europe’s gas taps. The Russian president issued a decree requiring all foreign buyers of its gas to open ruble accounts with Gazprombank, part of the state-owned energy giant, to exchange their foreign currency.

States across the bloc have been working on a coordinated response to Moscow’s demands, with Germany calling it “blackmail.”

A Kremlin spokesman said the decree would not come into effect until new payments were due in the second half of April.

The ruble has appreciated in recent weeks and is approaching pre-invasion levels, partly as a result of capital controls imposed by Moscow.


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