(Bloomberg) — In Germany, some industrial furnaces have been running without interruption for decades. If they cool down suddenly, the molten materials harden and the system breaks.
That’s the kind of concern sweeping through Europe’s largest economy as it faces an unprecedented energy crisis.
What started as vague foreboding over reduced supplies of Russian gas is now very real. After President Vladimir Putin slashed flows on the main link to Europe by 60%, experts in Chancellor Olaf Scholz’s administration this week worked out the scenarios and none of them led to sufficient reserves to make it through the winter.
“That was the sobering moment,” Klaus Mueller, who heads Germany’s network regulator known as BNetzA, said Friday in an interview with Deutschlandfunk radio. “If we have a very, very cold winter, if we’re careless and far too generous with gas, then it won’t be pretty.”
The risks extend beyond beyond a recession, and a winter of freezing homes and shuttered factories. For decades, Germany has prospered off the back of cheap gas. The answer to the growing economy’s needs more often than not was a new pipeline to Russia.
That era is now over, and companies from BASF SE to Volkswagen AG are coming to terms with the new reality.
There will be quick fixes — like reviving polluting coal plants and switching fuels in industrial processes — but structural issues loom as the transition to affordable renewable power will still take years.
Firms making metals, paper and even food could be forced to downscale or close German production sites, accelerating a steady exodus of manufacturing jobs and leaving lasting damage to the country’s economic landscape.
“Companies will move production to where there’s competitive pipeline gas, and this won’t be in Germany,” said Wolfgang Hahn, managing director of Energy Consulting Group GmbH. “You can’t correct 20 years of policy errors in two or three years.”
The latest figures show that it would take 115 days to reach the government’s target of filling gas reserves to 90% capacity by November. That time frame assumes flows remain at the current level, which is unlikely given the Kremlin’s increasingly aggressive posture toward Europe in retaliation for sanctions imposed over Russia’s war in Ukraine.
In response to the grim prospects, Germany — which still relies on Russia for more than a third of its gas supplies — elevated its threat level to the second-highest “alarm” stage on Thursday. If the squeeze gets tighter, Germany could start rationing supplies.
The moment of truth is likely to come next month, when the Nord Stream pipeline goes down for scheduled maintenance. Germany worries it may never come back.
“I would have to lie if I said I didn’t fear that,” Economy Minister Robert Habeck said Thursday in an interview with public broadcaster ZDF.
Germany’s vice chancellor drew a parallel between the gas squeeze and the role of Lehman Brothers in triggering the financial crisis. If energy suppliers continue to pile up losses by being forced to cover missing Russian supplies at high prices, there’s a risk of a broader collapse.
Uniper SE, Germany’s largest Russian gas importer, has already warned it may face difficulties fulfilling supply contracts to local utilities and manufacturers if Moscow prolongs or increases gas cuts.
The crisis has already spilled far beyond Germany, with 12 European Union member states affected and 10 issuing an early warning under gas security regulation. Europe’s increased demand for liquefied natural gas will also hit poorer nations around the world as they struggle to compete for cargoes.
“We are worried” that Russia will cut off gas supplies to Europe, Estonian President Kaja Kallas said at the EU summit in Brussels on Friday. “We need to be prepared to have different energy mixes, united purchases of liquefied gas and do these things together.”
Read more: Europe Must Declare a War Economy: Andreas Kluth
Scenarios from BNetzA, which would manage Germany’s gas distribution in the event of rationing, take into account a series of emergency measures, including two floating LNG terminals that will come online this winter, auctions of excess fuel for industry and a 15 billion-euro ($15.8 billion) government program to buy gas on the spot market.
“Storage sites in Germany need to be filled as soon as possible,” said Sebastian Bleschke, head of INES, the association of German storage operators. “For some sites, the window of opportunity is closing.”
Bavaria-based Wiegand Glas shows the difficulty of unwinding Germany’s gas demand. The company’s 11 glass-melting furnaces — like all those in the country — operate 24 hours a day for more than a decade. Even if Wiegand idled production, the furnaces would need 75% of normal gas consumption to prevent the molten glass inside from seizing up and destroying the furnace.
“But then we have to carry the energy cost while we have nothing to sell, so this is not really an option,” Chief Executive Officer Oliver Wiegand said in an interview. If the highly-specialized furnaces break, rebuilding would be time-consuming and expensive. “It would take a decade to build up to normal production again,” he added.
Economists are trying to pin down the scope of the risk, but it’s a challenge. European Central Bank President Christine Lagarde said 75% of what the bank got wrong in its inflation prediction last year was due to energy prices.
German economic institutes warned in April that an immediate halt to Russian imports of oil and natural gas would cause a 220 billion-euro hit to output over the next two years. While it could be more benign now as storage levels tick up, predicting the outcome of an unprecedented situation is difficult, said Stefan Kooths, an economist at the Kiel Institute for the World Economy, who was involved in the forecast.
The Bundesbank estimates that Germany’s economy will shrink more than 3% in 2023 if Russian energy supplies stop. That would be the worst slump outside of the recessions sparked by the Covid-19 pandemic and the global financial crisis.
The outlook is already grim. Manufacturing orders at factories have fallen for the past three months, costs are rising and confidence is crumbling. The Ifo Institute’s closely watched measure of business expectations unexpectedly dropped this month.
For now, companies are bracing for a prolonged reduction in energy. BASF, Europe’s biggest chemicals maker, may cut output because of the rising cost of gas, which is used as a feedstock in production and to generate electricity. BMW AG, the world’s biggest luxury-car maker, may buy electricity rather burn gas in its own on-site power plants.
“We could switch some production from gas to oil if needed, but it would be five-times less efficient,” Hagen Pfundner, head of the German operations of Swiss drugmaker Roche Holding AG. “That would not be a durable solution.”
Germany is preparing consumers and businesses for tough times ahead. BNetzA’s Mueller warned that households could face doubling or tripling of their gas bills and called on people to save money and energy. Habeck appealed to Germans sense of solidarity to fend off Putin’s energy attacks.
Responding to the suggestion of a state bonus for saving gas, he said: “If someone says ‘I’ll only help if I get 50 euros more,’ I’d say ‘you’re not getting it, dude.’”
Read more:
Germany Warns of Lehman-Like Contagion From Russian Gas Cuts
Gas Rationing Is Getting Closer for Europe
The Weakest Link in Germany’s Energy Security Is Fraying
Germany Girds for Day of Reckoning in Russian Gas Showdown
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
