Reducing energy costs will play a key role in Germany's economic recovery after three years of soaring electricity and natural gas prices.
Germany's new government will face a challenging task in pulling Europe's largest economy out of two consecutive years of recession.
Reducing energy costs will be key to Germany's economic recovery after three years of soaring and volatile electricity and natural gas prices since the global energy crisis in 2022.
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| High energy costs have hit many key German industries, including car manufacturing, steelmaking and chemicals. Illustration photo |
High energy costs affect many industries
Domestic electricity prices have been volatile in recent months due to low wind speeds. Germany has had four months of weaker-than-normal winds, which reduced wind power production, pushed up electricity prices and made the country more dependent on fossil fuels. Electricity prices have risen this year due to higher natural gas prices in Europe amid a cold winter, low wind power production and gas consumption outpacing the replenishment of reserves.
Over the past few years, high energy costs have hit many of Germany’s key industries, including auto manufacturing, steelmaking, and chemicals. Germany’s once-vaunted industries have become increasingly uncompetitive as profits have shrunk, leading to temporary or permanent plant closures. German automakers have even proposed job cuts in Germany, something they would have found unthinkable just a few years ago.
Germans went to the polls in a snap election on February 23 as Europe's largest economy recorded its second consecutive year of recession.
Germany's gross domestic product (GDP) is expected to shrink by 0.2% in 2024 from a year earlier, marking the second consecutive year of decline.
“Cyclical and structural pressures have hampered the development of the German economy in 2024,” said Ruth Brand, President of the German Federal Statistical Office.
“These factors include increased competition for German exports in important markets, high energy costs, still high interest rates and an uncertain economic outlook. Against this backdrop, the German economy is expected to contract again in 2024,” Brand added.
Pressure on the new government
In the February 23 election, German voters gave the conservative Christian Democratic Union (CDU) the right to begin negotiations to form a new government. CDU leader Friedrich Merz is likely to become German chancellor.
In addition to navigating an increasingly complex geopolitical landscape, Germany's new government will face its most pressing domestic issues: reviving the economy and industry and reducing energy bills for businesses and households.
Businesses are urging the new government to act quickly and decisively to reduce energy costs and ensure energy security, helping Germany regain its competitiveness.
“The first important step now is to quickly translate the election results into a strong, action-oriented and reform-ready government,” said Markus Krebber, CEO of German power utility RWE.
Securing a stable energy supply at competitive prices is a prerequisite for Germany to revive its economy and strengthen its industry, Mr Krebber stressed in a LinkedIn post after the election.
Siemens Energy CEO Christian Bruch called for energy policy measures, including supporting industrial growth, bidding for at least 12 gigawatts (GW) of new gas power plants to support the phase-out of coal, expanding wind power and the grid, as well as a strategic policy to secure raw material supplies.
“In the extremely difficult global and economic situation, Germany needs a stable government as soon as possible,” Hildegard Müller, President of the German Automotive Industry Association (VDA), commented on the election results.
“Businesses in general, and especially small and medium-sized enterprises – the pillars of prosperity – cannot continue to bear the burden of high energy prices and taxes and fees as they are today,” Ms. Müller emphasized.
“A commitment to SMEs must be accompanied by concrete measures that promise to provide support in the short, medium and long term,” she said.
Key German industries and power producers hope the new government will take strong and decisive measures to counter the industrial decline, including reforming energy policy.
| Over the past few years, high energy costs have hit many of Germany's key industries, including auto manufacturing, steelmaking and chemicals. Germany's once-vaunted industries have become increasingly uncompetitive as profits have shrunk, leading to many manufacturing plants closing temporarily or permanently. |
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