Labor market – Massive effects of rising energy prices – Economy

Cologne (dpa) – The Institute of German Economy (IW) in Cologne expects significant economic effects from the persistently high energy costs. “High price levels are burdening households with high energy costs and rising consumer prices,” write the authors of the current study available to the German Press Agency in Berlin. “Overall, the cost of living is rising significantly.”

The authors analyze various scenarios of energy price increases – starting from a high starting point. The price of gas itself has already risen five times on average in 2020-2021. The Institute emphasizes, however, that these are not forecasts, but rather possible changes.

The first scenario

In the first scenario, scientists assume that the price of natural gas will increase by 50%. from the second to the third quarter of this year, and normalization or re-calming will take place only in the next year. At the end of 2023, the price of gas would still double its annual average in 2021. In this calculation model, the price of oil will slightly increase by 10%. in the third quarter of this year and will decline during 2023, but then would still be 45 percent higher in 2021 Annual Average.

These are realistic assumptions, says co-author Thomas Obst. From February to March, the price of gas increased by around 50%. Experts assumed that the price of oil would rise less as it is transported by ship rather than pipeline, making it easier to replace.

Scientists compared the additional economic costs of these changes compared to the baseline scenario. The baseline scenario assumes a fall in gas prices by around a third and oil prices by around a fifth by the end of 2023 – in any case compared to Q2 2022 levels. “The situation is tense but possible to resolve,” he says Obst, describing this model of computation. Under these assumptions, the missing gas could be partially replenished, and German warehouses largely full. At the same time, industry and consumers would save gas.

The consequences for the German economy would be clearly visible in the first scenario compared to the baseline scenario. According to IW calculations, inflation would increase by 0.9 percentage point. in the current year and by 1.3 percentage points. in the coming. Economic performance would also suffer: Gross Domestic Product (GDP) would fall by 0.2%. this year and by 1.3 percent. in the forthcoming – scientists took into account inflation in these calculations.

Since people would have less money at their disposal, they would also buy much less: private consumption would be 1.1 percent lower than the baseline. Firms, in turn, would have less money to invest. They will fall by 0.4 percent. in 2022 and by 3.1 percent. in 2023

Second scenario

In the second scenario, experts assume much greater uncertainty of gas supplies and further reduction of supplies. In particular, they assume that the price of natural gas will double and will remain at this level in 2023. The assumed doubling of the gas price was recently shown on the futures markets, says Obst: Transaction prices with future deliveries, the so-called futures, would increase around mid-June. Moreover, in this scenario, the price of oil would increase by 30%. At the end of 2023, the price of gas would be four times the annual average in 2021. Oil prices would be about 72 percent above 2021 levels.

With these assumptions, the effects would be even more pronounced. Experts then assume that inflation will be 1 percentage point. higher this year and by 4 percentage points. higher in the upcoming – again compared to the baseline scenario. According to calculations, the gross domestic product would be 2 percent. lower in 2023. Overall, the loss of economic performance would be around EUR 70 billion. Investments would drop by 0.4 and 4.2 percent respectively. this and the next year. The unemployment rate could therefore rise by just over half a percentage point in 2023 and unemployment could rise by over 300,000. people.

Standardization will not return until 2024. “Normalization does not mean a return to the pre-war level,” emphasized Obst. It expects a complete restructuring of the energy infrastructure, incl. by building terminals for importing liquefied natural gas (LNG). “It costs money and time, especially since LPG is more expensive than natural gas.” Normalization, that is, a stable state again, in this case means: “Uncertainty would go away again, we would know again where we get our energy from and we assume that it will stay that way.”

Both scenarios do not take into account possible production losses in the event of a complete cessation of gas supplies, as the effects would be too complex from the CI’s point of view and therefore difficult to model in the models.

“Despite this, consumers and producers must be prepared for persistently high prices,” the authors write. “The aid packages that have been decided so far can only partially compensate for the additional burdens that can be expected.”

© dpa-infocom, dpa: 220811-99-346105 / 2

Leave a Comment