German industry's order book at an all-time peak
Revised Article:
Hit a snag on Germany's lifeblood waterway: Record-low water levels on the mighty Rhine are expected to surge again, thanks to some incoming rainfall. But will it last? The threat ain't over yet—just peek at Emmerich on the Lower Rhine, where the water level hit a record-breaking -2 cm early Wednesday, making shipping sketchy as hell.
This water scarcity's consequences ain't pretty: It's throwin' a wrench into coal power plants and give steam to fears of disruptions for steel giants like Thyssenkrupp and chemical titans like BASF (see page 14), who depend on the Rhine for their raw materials. They're sweatin' their supply chains might go up in smoke. Addin' insult to injury, incomplete shipping makes industry associations like the BDI worry about dire consequences. "This prolonged drought and low water levels pose a major threat to industrial supply security," says BDI Vice-Chief Holger Loesch. "It's just a matter of time before plants in the chemical or steel industry grind to a halt, or vital oil and construction materials miss their mark." The BDI warns of bottlenecks, production slumps, short-term work, and exacerbating the energy crisis.
And if you thought things couldn't get any worse, they did. Germany's economy is on shaky ground, with the ZEW index—a six-month economic development gauge—plummeting unexpectedly sharp in August, down 55.3 points.
Recession in 2023, too?
The Ukraine war, inflation, and expected interest rate hikes aren't helping the economic situation. The unlucky consumers face a new gas surcharge of 2.419 cents per kilowatt-hour starting in October, further pinching household budgets, so don't count on personal spending to step up the game in the second half of 2023.
Most experts now predict a contraction in the third quarter, one that'll likely carry over into the fourth. That'd mean Germany's economy might be labelled as being in a recession according to the formal definition. Economists from DekaBank, Commerzbank, and Deutsche Bank even predict a 1% decline for the whole of 2023. After a 0.8% growth in the first quarter of 2022, the GDP stood still in the second. Based on Bantleon's calculations, German households may lose €70 billion in purchasing power next year due to pricey energy alone, on top of the €70 billion forecasted for 2022.
Despite the gloomy economic outlook, there's a silver lining: Reports show a record high order backlog in German industry. Orders rose 0.5% from last month and 14% from last year. Yet, many companies struggle to keep up with orders due to disrupted supply chains. "The high order backlog means industry might survive the upcoming recession quite well," says Holger Schmieding, Berenberg Bank's chief economist. But don't forget, potential order cancellations are also a concern. If supply chain issues ease in the coming months, expect production to pick up.
The prolonged drought and low water levels on the Rhine are not only threatening industrial supply security for companies like Thyssenkrupp and BASF that depend on the Rhine for their raw materials, but they're also adding financial strain to these businesses as incomplete shipping makes industry associations like the BDI worry about dire consequences. The economic situation in Germany is worsening, with experts now predicting a 1% decline for the whole of 2023, potentially leading to a recession. This economic downturn, coupled with the increase in gas surcharges and the loss of purchasing power due to pricey energy, raises concerns about personal spending and possible order cancellations in the second half of 2023 and beyond.
