The Germans are cutting costs
2022.12.01 03:36
The Germans are cutting costs
Budrigannews.com – In his restaurant near the Black Forest, Theo Jost served the German Christmas dish of goose for 25 years. Farmers in northern Germany raised the fresh birds.
However, this year, he withdrew the dish from the menu because rising costs throughout the supply chain would have doubled its price.
“I told my son, “According to Jost, “We can’t expect our guests to pay 60-70 euros ($62-75) for a serving of goose.”
In the midst of a cost of living crisis exacerbated by rising energy costs, Germans would be unable to afford that. They increased as the world emerged from pandemic lockdowns in 2021, and the standoff between the West and Russia, which has a lot of gas, has pushed them even higher.
Germans were delaying spending decisions as inflation ate away at their income, and a wide range of economic data suggests that the situation will not improve for several months into 2023.
Germany, which is heavily dependent on gas from Russia, saw inflation in November at 11.3%, according to the official, harmonised measure used across the entire European Union. This is higher than the 10% average among countries that use the euro and well above the 7.1% of neighboring France.
The Group of Seven’s largest economy is expected to enter recession the following year.
The International Monetary Fund predicts that output will fall by 0.3 percent, despite the fact that the average growth rate for its benchmark of advanced economies will be 1.1 percent.
Germany’s high inflation and slow growth are important for the region because it is Europe’s largest economy: On the one hand, it might be able to encourage the European Central Bank to tighten its policies;Conversely, it delays overall activity.
Germany’s reliance on Russian energy is already raising concerns about the long-term impact on the country’s industrial might. However, the 43.5 percent annual increase in energy costs is also having a significant impact on consumers, accelerating further price increases and reducing their ability to spend.
Ulrike Malmendier, an economics professor at the University of California, Berkeley who is a member of the SVR council of economic experts that advises the government on policy, states, “This is not just your regular recession.”
Malmendier told Budrigantrade that “we are dealing with the fact that we will have long-term, significantly higher energy prices.” He added that this could also have a long-term effect on consumer spending, which policymakers would need to address.
In 2023, the SVR anticipates that weak private consumption will contribute to the recession that the IMF and others are now predicting.
According to SVR data, inflation-adjusted wages in Germany were lower in the middle of 2022 than at the end of 2019.
However, recent wage agreements suggest that more will fall:With a cumulative 8.5% increase spread out over two years, the IG Metall trade union’s agreement in southwest Germany that will serve as a model for future agreements was below inflation.
While certain financial experts see expansion in Germany cresting by right on time one year from now, various homegrown variables mean its effect on customers will reverberate long into the future in a country with a firmly established social repugnance for cost rises.
A software developer from Leipzig named Tobias Rademacher recently received his new year’s power bills.He claims that in order to pay the bills in 2023, he will need to set aside twice as much of his income as he does this year.
However, like many others working in the local rental industry, he is most worried about what will happen later that year. German renters pay their landlords monthly heating bills, which are based on how much they used in the previous year.
He, along with hundreds of thousands of other people, will receive a bill for his heating in 2022 at some point in 2023 in order to recover additional costs incurred due to rising prices.
The 42-year-old told Reuters, “For now, I’ve decided against planning a major vacation next year, because you simply don’t know what you’re up against.” He also said that despite having what he called a comfortable salary, he was putting off buying a new bicycle.
Rademacher isn’t the only one.According to the German travel agency ta.ts, travel bookings are down 15% from last year, and OpenTable data indicate a downward trend in restaurant reservations.
The HDE retail association has warned that this year’s Christmas sales will be the lowest since 2007.
In November, discount retailer Primark stated that it was considering reducing its presence in Germany due to declining sales and rising costs.
The research organization Prognos predicts that wholesale power prices will reach levels twice as high as they were prior to the Ukraine War by the end of 2023, indicating that there is no simple solution to Germany’s energy issue.
Bantleon senior economist Joerg Angelé anticipates that consumers will continue to save for non-essentials.
Angelé stated, “You can’t save on power or gas, and those will be more expensive next year.”I worry that housing rents will continue to rise, and you won’t be able to save money on groceries.”
The GfK research group’s polls show that consumers are feeling hopeless.According to the most recent data, consumer sentiment had slightly improved since October.However, sentiment is still at some of the lowest levels in two decades.
A recent cross-country study conducted by the EY consultancy highlighted the low morale readings further, revealing that 23% of Germans, compared to 16% of French, are concerned about their finances.
That should not come as a surprise. Both the cost of energy and the cost of food have gone up more in
Germany than in France: A harmonised index indicates that in October, Germany experienced 18.9%, while France experienced 12.9%.
In the land of low-cost retail pioneers like Aldi and Lidl, where Germans have relied on relatively cheap groceries for years, this comes as even more of a surprise.
The war in Ukraine, which hit all countries that import food, stifled the supply of sunflower oil and raised prices for fertilizer, feed, and energy—all of which are needed to heat barns, run production facilities, and transport goods.
Officials in the local food industry also point to the recent decision to raise Germany’s minimum wage to 12 euros per hour, which will increase production costs.
Another factor has been national policy. A highlight Germany’s late move to cover energy costs and difference it with the significantly sooner move by France to help customers with endowments at petroleum siphons and somewhere else.
According to Jeromin Zettelmeyer, director of the Bruegel think tank in Brussels, “the higher sensitivity” to social unrest following the 2018 “gilets jaunes” (yellow vest) protests against a government attempt to raise energy taxes may have prompted France to act more quickly.
Germans are becoming more concerned about future inflation as a result of the combination of all these factors: According to the OECD, household inflation expectations for the next five years were 6% in September.European consumers’ three-year inflation expectations are 3%, according to the ECB.
Malmendier stated, referring to ECB projections of a quick return to target inflation rates:I’m concerned that they’re overly optimistic.
