G7 leaders mock Putin at roundtable in Germany
The Gfk survey of German consumer confidence showed on Tuesday that consumer confidence in Europe’s biggest economy is set to fall to a record low next month as war in Ukraine and supply chain disruptions supply continue to drive up food and energy prices.
The index predicted that confidence would fall to -27.4 in July from a revised reading of -26.2 in June.
July’s figure is the lowest measured by the index since its inception in 1991.
GfK consumer expert Rolf Bürkl said: “The ongoing war in Ukraine and disruptions in supply chains are causing energy and food prices to skyrocket, resulting in a climate of consumption darker than ever.”
Mr. Bürkl said the rising cost of living had the biggest impact on consumer sentiment, sending it into a downward spiral.
The report notes: “Consumers continue to see a significant risk of the German economy sliding into recession.”
Income expectations also showed a continuous and rapid decline in June, falling to -33.5 from -23.7 in May.
GfK said it was the lowest value in nearly 20 years.
The German economy is in trouble following the Russian invasion of Ukraine.
The controversial Nord Stream 2 pipeline was axed by Germany following Russia’s invasion of Ukraine.
Falling economic and income expectations have made the German public less willing to spend money, according to the report.
GfK’s Bürkl said the European Central Bank should adopt an appropriate monetary policy to curb inflation.
At the same time, he noted, such measures should not plunge the struggling German economy into a recession.
Elsewhere, the June PMI survey also released last week showed the fallout from the war in Ukraine had brought Germany’s economic recovery from COVID-19 to a halt in its tracks.
Phil Smith, an economist at S&P Global which compiles the survey, said economic sentiment in Germany had “lost virtually all the momentum gained from the easing of virus-related restrictions, growth in the service sector cooling sharply for the second consecutive month in June.”
German business sentiment also plummeted in June on fears that rising prices and gasoline shortages will continue to weigh on the economy for the rest of the year.
Based on a survey of around 9,000 companies, the Ifo business climate index released last week fell to 92.3 points in June from 93.0 points in May amid gloomy prospects for the rest of 2022.
German Economy Minister Robert Habeck presents a grim forecast for gas storage levels on June 23.
President Clemens Fuest said: “Rising energy prices and impending gas shortages are causing serious concerns for the German economy.”
He cited a particular focus on the chemical industry, which relies heavily on natural gas supplies from Russia.
Germany is now officially running out of natural gas and is stepping up a crisis plan to preserve supplies as Russia halts deliveries.
The country raised its national energy alert in the face of Russia’s “economic attack”, triggering phase two of three of its emergency gas plan last Thursday.
The plan comes into effect when the government sees a high risk of a long-term gas supply shortage.
The measure is the latest escalation in a standoff between Europe and Moscow since Russia’s invasion of Ukraine exposed the bloc’s dependence on Russian gas supplies.
German Economy Minister Robert Habeck said last week that the country was heading for a gas shortage if Russian gas supplies remained as low as they are now.
Demonstrations against the Russian invasion of Ukraine on the first day of the G7 summit in Germany, June 26.
He told Der Spiegel magazine on Friday that some industries would have to shut down if there was not enough gas in the winter.
He said: “Companies would have to shut down production, lay off their workers, supply chains would collapse, people would go into debt to pay their heating bills, people would get poorer.”
Mr Habeck said it was part of Russian President Vladimir Putin’s strategy to divide the country.
He called it “the best breeding ground for populism, which aims to undermine our liberal democracy from within”, adding that Putin’s plans must not come true.
Addressing a press conference in Berlin on Thursday, he said: “Gas is now in short supply in Germany.
“Even if you don’t feel it yet: we are in a gas crisis.”
Mr Habeck said he hoped rationing of supplies in the industry would not be necessary to get through the coming winter, but it could not be ruled out.
Germany, however, refrained from allowing utilities to pass on soaring energy costs to customers.
Europe’s energy crisis deepened this month as Russia further choked off supplies to Germany, Italy and other EU members over the conflict in Ukraine.
Russian gas company Gazprom cut flows through the Nord Stream 1 pipeline to Germany by 60% last week, blaming the move on the West’s decision to withhold vital turbines due to sanctions.
Italian energy giant ENI said Gazprom was cutting supplies by 15%.
So far, twelve EU countries have been affected by Russian gas supply cuts, the bloc’s climate policy chief Frans Timmermans said on Thursday.
Mr Timmermans said: “Russia has weaponized energy and we have seen further gas disruptions announced in recent days. This is all part of Russia’s strategy to undermine our unity.
“Thus, the risk of a total gas rupture is now more real than ever.”
Moscow has claimed cuts in Russia’s gas supply to Europe are the result of technical problems rather than political reasons, with Kremlin spokesman Dmitry Peskov denying there is a ‘hidden agenda’ “.