The risk of stagflation in the German economy continues to intensify.
The latest data released by the German Federal Statistics Office on September 29 showed that the German consumer price index (CPI) rose 10.0% year-on-year in September, reaching the double-digit level for the first time since 1951. Among them, energy and food prices rose by 43.9% and 18.7% year-on-year.
On the same day, four German heavyweight think tanks lowered their expectations for the growth of the German economy. Ifo Economic Research Institute and other institutions in Munich said that Germany's GDP will grow by 1.4% this year and will shrink by 0.4% in 2023. Just five months ago, these think tanks also predicted that Germany's economic growth rates will be 2.7% and 3.1% this year and next year, respectively.
"This correction mainly reflects the severity of the energy crisis ." The above think tank said in a joint statement. They believe that the energy supply situation in Germany is still extremely tight, and the price of natural gas may continue to be much higher than pre-crisis levels.
Huatai Futures FICC researcher Cai Shaoli told First Financial reporter that energy issues are the key to affecting the direction of Germany's economy.
"At present, the continuous increase in the installed capacity of photovoltaic and the continuous investment of offshore wind power projects will alleviate the electricity consumption pressure of German households and enterprises, so that more electricity will flow to industrial production and manufacturing, and reduce the electricity costs of enterprises. However, it is still necessary to pay attention to whether Germany will experience de-industrialization due to this round of energy crisis. If this trend continues, it will cause irreversible industrial damage to Germany." He said.
How to get out of the energy crisis?
On September 30, the TTF benchmark Dutch natural gas futures price, known as the "weather vane" of European natural gas prices, was 209.757 euros/megawatt-hour, about three times the price at the beginning of the year.
The Federal Network Bureau of the German energy regulator said on the 29th that the country's natural gas consumption by households and small businesses reached 483 gigawatt hours (GWh), 14.5% higher than the average in the same week in the past four years. The agency head Klaus Mueller said the number is very thought-provoking. “If private families don’t save energy, it will be difficult for us to avoid natural gas shortages in winter,” he said.
The high energy prices have caused energy-intensive industries such as German chemical industry to cut production or stop production. A survey by the German Automobile Industry Association shows that more than half of the country's automobile companies have canceled or postponed their investment plans. According to a survey by the German Association of Small and Medium Enterprises, more than half of German small and medium-sized enterprises are currently worried that they may go bankrupt due to the energy crisis.
Against this background, the German government has introduced multiple rounds of relief policies. On September 29, the German government said that by 2024, the country's government will invest 200 billion euros to deal with the energy crisis and set a cap on energy prices.
However, in Cai Shaoli's view, although the German government frequently sends positive signals to all walks of life, in the end, only the people's heating needs may be guaranteed. "Under the incentives of subsidy policies, corporate natural gas demand will not decline. The government will inevitably need to make up for the difference caused by the price ceiling, which will increase the German government's funding expenditure. In addition, the borrowing behavior brought by the subsidy policy will further boost the country's inflation ." He said.
"The decisive factor affecting the trend of energy prices is the fundamentals of supply and demand." Liu Chao, chief researcher of financial derivatives at CICC Futures , said in an interview with the First Financial reporter, "At present, the power generation of nuclear power and hydropower in Europe has shrunk significantly compared with last year, and Germany and other countries have frequently hit walls on their 'gas search' journey. Against this background, the German government's subsidy policy can only be regarded as a correction of the power pricing mechanism, but it is difficult to solve the substantive problems."
Liu Chao believes that whether the German economy will emerge from the quagmire in 2024 depends on how to solve the energy problem. "At present, Germany's call for a new embrace of traditional energy is getting stronger. In July this year, the German federal government made a decision to re-enter the coal-fired power supply that is planned to be suspended in 2022 or 2023. At the same time, nuclear power plants scheduled to be shut down by the end of the year are also expected to be postponed. If traditional energy power generation is fully restarted, Germany's domestic energy cost burden will be reduced, which will help the country's economy to recover."
ECB October hike rate "arrow on the string"
economist Carsten Brzeski, Dutch International Group (ING) said that high inflation in Germany will bring considerable pressure to ECB (hereinafter referred to as the "ECB"). Paul, chief European economist at BNP Paribas Hollingsworth said that as inflation is still rising, the ECB raises another 75 basis points in October looks very likely.
Recently, ECB Chairman Lagarde said that raising borrowing costs is the most appropriate and effective tool to deal with record high inflation in the euro zone.
Affected by inflation data, Germany's 10-year government bond yield rose to 2.112% on September 30. Refinit said that in the third quarter, Germany's 10-year treasury bond yield is expected to hit the largest quarterly increase since the beginning of 1990.
However, in Liu Chao's view, although the overall inflation pressure in the euro zone is relatively large, the industrial capacity of all countries has declined significantly. Not only that, the energy relief policies introduced by many governments will also increase their fiscal burden. If interest rate hikes are continuously raised, it will increase the debt risks of the entire euro zone. "So under multiple difficulties, the ECB's path to hikes may not be very clear. "He said.
Data from the European Statistics Office shows that as of the end of the first quarter of 2022, the eurozone government debt fell to 95.6% of the gross domestic product (GDP). Among them, the proportion of government debt of Greece , Italy and Portugal in GDP has reached 189.3%, 152.6% and 127.0%.