Worries about end of Russian gas supply leave German business anxious

A serious recession could be on the cards if Russian gas stops flowing to Germany, the Association of German Chambers of Commerce and Industry (DIHK) has warned.

The decline in economic output could be 10% or more when winter comes, said DIHK president Peter Adrian, who argues that the government needs to lift restrictions so firms can more quickly set up alternatives to gas power.

Germany is waiting to see what happens after Monday, when Russian gas provider Gazprom is set to shut down the Nord Stream 1 pipeline for routine annual maintenance.

Gazprom has already significantly reduced the flow of gas through the pipeline - citing technical reasons that Germany says are dubious - and the fear is that the gas flow is not going to resume.

The tensions are linked to Russia's invasion of Ukraine earlier this year and the resulting Western sanctions. Russia has continued to sell gas and other fuel to the West, but has bristled as increasingly severe punitive measure are implemented. It has begun cutting fuel to some of the countries levying sanctions.

"We're facing the problem at the moment that our gas supply could possibly collapse," said Adrian. "The clock is ticking and, as businesses, we have to think about the worst case scenario.

"We have to unfortunately face the scenario that, when maintenance ends on July 21, that no more gas will flow through Nord Stream 1. That would be a disaster."

Although the German government is trying to set up floating terminals to receive liquefied natural gas, those will not be ready by the end of the year, when winter starts. "That means we're about to have an energy problem," he said.

Without gas, many companies will have to shut down. "In that case, I'm very worried about a recession. Then we're going to see an economic downturn that is drastically different than what we experienced during the financial crisis."

During the 2009 financial crisis, gross domestic product (GDP) in Germany shrunk by 5.7%. During the coronavirus crisis in 2020, GDP sank 4.6%.

Germany is hoping to avoid the worst shortages of gas for heating by bringing coal supplies back online. But home use will take priority over business use in event of a shortage and Adrian pointed out that some firms need gas as an essential component of their production process.

There are thousands of examples, he noted. And it's not all manufacturing, he said, pointing out that a lot of food production requires gas.

Adrian said the state might have to auction off access to gas. Some firms could also get access to alternative fuel sources, like oil or coal, this would sometimes require laws to be rewritten, according to the DIHK president.

While many are concerned about events in the weeks to come, German Chancellor Olaf Scholz cautioned on Saturday that emergency energy measures could be necessary beyond winter.

In a video message, Scholz said energy security would be an issue for the "next weeks, months and even years."

Despite the temporary measures, Berlin's long-term aim remains becoming independent of imports of oil, coal and gas and to expand the share of renewable energies, Scholz said.