Economy could contract in second half of the year

The German Bundestag

The federal government expects the economy to contract.

(Photo: Getty Images)

Berlin The federal government presents itself in view of the energy crisis into a recession. "German economic output could stagnate or decline in the second half of the year"according to the monthly report published on Tuesday by the Ministry of Economic Affairs.

While the German economy proved to be resilient in the first six months, the economic mood has recently clouded over significantly. Industrial production fell in July, especially in the energy-intensive sectors. Incoming orders also fell for six months in a row, while foreign trade also developed weakly.

At the same time, the government expects an increase inflation. "All in all, the energy price shock that resulted from the reduction in Russian gas supplies is increasingly affecting the German economy," warns the ministry headed by Robert Habeck.

Many companies and consumers therefore expected prices for electricity and gas to continue to rise. "Even if there is unlikely to be any physical rationing of gas volumes in winter, the high prices are making many production processes unprofitable and demand for the manufactured products is falling," it said. The inflation rate, which was 7.9 percent in August, is likely to rise again in September because the reduction in the energy tax on fuel and the 9-euro ticket will then no longer have a price-dampening effect.

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The ministry can now cope better with a complete cessation of Russian gas supplies via Nord Stream 1 than just a few months ago - mainly because other suppliers have stepped in in the meantime and demand has reacted to the increased prices. As a result, the gas storage facilities are now quite full. “Nevertheless, the high gas prices that have to be paid for Germany a welfare loss," it said.

More: The number of company bankruptcies increases in August – the association sees more than a million companies at risk

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