Sectors and Resources

With Q1 GDP growth revised to -0.3% we now expect annual GDP to shrink by 0.3% in 2023. With the expected US recession weighing on German economic momentum towards year end we have cut our annual forecast for GDP growth in 2024 to 0.5% from 1.0%. Meanwhile, the energy transition policy is putting strains on government cohesion, as can be seen from the failure to agree on a piece of climate legislation this week. Spending pressures and debt-brake limits add to tensions. Still, none of the three ruling parties has an incentive to trigger early elections. [more]

The costs of electricity generation of different energy sources are often debated. Often, however, no distinction is made as to which specific costs are meant. While renewable energies have marginal costs close to zero and very competitive levelized costs of electricity, a high and increasing share of weather-dependent renewables leads to system costs. They result, for example, from the provision of back-up power plants and the falling average capacity utilization of all existing power plants. We discuss the different types of costs of power generation and note that investments in renewables are easier to realize than the construction of new back-up power plants. [more]

In the first edition of our Energy Transition Monitor, we take stock of the current speed of renewables rollout, e-car uptake, heat-pump installations, and energy infrastructure build-up (e.g., regarding hydrogen) in Germany. We then analyse existing bottlenecks for reaching envisaged targets for 2030. Finally, we provide an update of current policy action aimed at mitigating those bottlenecks, both at the EU and national level, and potential implications of these policy measures on investment spending (private and public). [more]

The German economy – one year after. With surprisingly strong hard data for January, chances are rising that GDP might be saved from another decline in Q1. Although not yet our baseline call, this would prevent Germany from going through a technical recession. However, still heightened uncertainty and real income losses due to high inflation will likely keep investment spending and private consumption flatlining in the first half of the year. Hence, we maintain our 0% forecast for 2023 German GDP growth, although upside risks have increased since the start of the year. [more]

Despite the lower absolute energy imports, Germany had to pay significantly more for its imports because of higher prices. Total primary energy demand in Germany fell by just under 5% in 2022. Oil, coal, and renewables have expanded their share in primary energy demand, while natural gas and nuclear energy have lost importance. [more]

We look at the expected recession in the winter half-year 2022/23 and the onset of recovery, how inflation will peak, while the labor market loses momentum and private consumption is hit by the loss of purchasing power. Construction and Capex spending are set to deteriorate. Fiscal policy continues to lean against the headwinds but should normalize somewhat. Loan growth, both with corporates and private households, may slow substantially. In a medium-term perspective, we discuss risks for the manufacturing industry and Germany’s geopolitical and competitive position. [more]

No industrial sector in Germany has been affected as severely by the gas shortage and higher gas prices as the chemical industry. The industry's production level in October 2022 was 22.5% lower than in the 4th quarter of 2021. The prospects for the chemical industry in Germany have also deteriorated in the medium term. [more]

GDP: Lower risk of gas shortages but real income shock will bite. Fully replenished gas storages and the larger than expected fiscal support for households suggest that the recession will not be as deep as expected a few weeks ago, although private households will have to cope with a real income shock. [more]

Global sales of semiconductors reached an all-time high in 2021. At the same time, global tensions and growing awareness of the fragility of supply chains have led to a reassessment of the strategic importance of global supply chains and semiconductors. We use our Structural Semiconductor Sales Model (3SM) to explore the extent to which government initiatives on digital sovereignty in the US, Europe, and Asia will impact chip manufacturing capacities. In doing so, we calculate structural (i.e., non-cyclical) supply and demand for the period up to 2030. Assuming a continuation of historical supply and demand trends and a further tightening of the ratio of sales to investments (sales-to-capex ratio), it is our forecast that a huge structural demand gap will emerge in 2030 that cannot be closed by the government subsidy programs announced to date. From this perspective, today’s temporary supply chain issues may overlap with or be succeeded by structural shortages. [more]

Europe is in the middle of an energy crisis. It’s grappling with two big challenges at the moment – urgently weaning itself off Russian energy, particularly gas, and moving to a cleaner energy economy. At times, those two goals seem to be in opposition to each other. [more]