So Germany is facing an energy crisis And this price shock might lead to the Industrialization so we know that Europe Is still suffering from high gas prices And in a shocking report we now have the Figures of how badly the German industry Is really hurting according to Alliance German Industries are set to pay 40 more For energy in 2023 than in 2021 and this Isn't good news especially when we are All moving towards a global recession Now back last year we had Yasmin fahimi The head of Germany's Trade union Warning of a collapse of their Industries some companies are on the Edge this reads a domino effect which Could lead to the industrialization of Germany which would be a catastrophe and The story actually gets worse a German Staggeron Bank mentioned how Germany Faces an era of declining prosperity and I want us to realize that war is Expensive and painful and not just for Ukraine or Russia Europe might actually Be the Biggest Loser especially when it Comes to the future of their Industries Now without cheap energy two things Happen one your magnification cost Starts to soar and this will compound Over time and two you are less Competitive to the world right Especially when margins actually matter You are competing against China America South Korea Japan all of them are also
Manufacturing Giants and whatever Business you lose is going to go to them Even the IMF has packed Germany's GDP Growth at 0.1 percent in 2023 which is Even worse than Russia's economy which Is expected to grow by 0.3 percent in Fact Japanese Q4 GDP was negative 0.2 Percent which boosts us one quarter away From an official recession so the alarm Bells are really sounding here but we Quickly understand that Germany is Trapped there's no easy way out of this Mess now the not stream pipelines they Are offline and they have embargoed Themselves against cheap Russian gas so The Germans are at the risk of another Supply crime especially with China Reopening but let's try and quantify Just how leveraged Germany was on cheap Russian energy now back in 2022 Zoltan Pulls out of Credit Suisse revealed just How dependent the German economy was on Russian gas to actually power their Export-driven economy we can see that 20 Billion dollars of Russian gas were Driving almost 2 trillion dollars of German manufacturing value right there There's some incredible leverage and That's why when cheap energy is gone Germany's operating margins are going to Be hammered for years to come according To Alliance prices are going to hit Corporate profits by up to 1.5 percent And this is going to lead to lower
Investment it costs Germany around 25 Billion euros worth right and this Situation is just going to get worse at A 1.5 drop in profits doesn't really Sound like a lot but realize that Germany imposed a price cap for Companies and households worth 100 Billion euros so they're actually Absorbing the crash in profits for now And this can't go on forever for 25 000 Industrial consumers the German Government is setting prices at only 7 Cents per kilowatt hour on seventy Percent of their gas consumption in 2021 And this will last until 2024. that is a Very heavy subsidy which is going to Boomerang back at a taxpayer you can Delay the inevitable but someone will Have to pay for all these price controls But here's the thing higher energy Prices generate higher inflation right And this could force the ECB to once Again hike rates which is very dangerous And this higher rates is going to make The cost of worry extremely expensive Which could collapse any leverage in the System and I also remember a phrase from Putin in the speech last year he Mentioned how the economy of imaginary Wealth is being inevitably replaced by The economy of real and hard assets as Alfonso points out sticky inflation from Higher energy prices will cause rates to Go up which will inflict pain on hyper
Financialized economies like Germany and This is the pressures that is building On under the surface right Germany is Spending a lot of money to absorb the Higher energy bills and it's a really Scary amount the EU has spent an insane 800 billion euros and that's almost a Trillion to heal households and Companies from the energy crisis right But if we zoom in on Germany we can see That spending is truly extreme they have Allocated almost 270 billion euros which Is over seven percent of the entire GDP To subsidize the country right that is a Huge amount of money just to pay the Electric bill and the spending tells us That Germany is really getting pounded By the energy crisis if the German Government didn't absorb the pain Germany would already be on the path of Industrial collapse but the data gets Worse guys 270 billion is only the tip Of the iceberg and in order to raise Money to pay for this Germany has to get Deeper into debt now the German Government plans to issue a record Amount of debt to counter this energy Crisis which is even higher than the 2020 lockdowns or the 08 Financial Collapse now we're talking about 5 139 Billion euros in a high interest rate Environment and the problem with high Debt is how it will reduce business Investment down the road and slow down
Economic growth right you won't have the Money for Public Works infrastructure r D you'll be used to service the debt Payments it is a self perpetrating Doom Cycle that fuels continued inflation in The years to come right now if you look At the German bond yields we can see how Much of a disaster this debt balloon is Going to become now the 10-year bond is Yielding around 2.4 percent which seems Low compared to the U.S 10-year treasury Which is around 3.7 percent but just a Year back German bond yields on the 10 Year were actually negative 0.3 percent People were actually paying the German Government to lend it funny but things Have truly reversed so Germany's cost of Financing has exploded upwards across The board right and this essentially is A credit crunch for both the government And the German industry and that's why We are seeing investment drawdowns Happen across Germany and this will lead To job losses we have half of chemical Firms planning investment cards because Energy costs are just too high and now We have the American car maker fought Cutting away 2 300 jobs in Germany Because profits are dropping thanks to Rising costs it's the hardest hit Country in the entire Euro zone so even If Germany isn't the industrializing Their Industries are starting to Stagnate but let's talk about the
Biggest winners right this energy crisis Is a zero-sum game so whatever Germany Is losing a production capacity other Countries they are absorbing it and According to the report the United States is one of the winners in this Energy crisis and it's because they are The biggest natural gas producer in the World coming in at 23 percent of Global Production so in a sense American Industries they are shielded from rising Energy costs compared to Germany right Their Industries have other problems but Energy is not one of them plus they can Also sell overpriced LNG to Europe at One point gas prices in Europe were 10 Times higher than in the United States So American Energy exporters were really Raking it in right just take a look at That insane spike in European gas prices Compared to the American prices so it Makes perfect sense to liquefy your gas And then ship it to the euro Zone Remember that Germany and the EU in General are cut away from Russian gas so They only have a few Outlets left and That includes Norway and the United States and that's why American Industries will come out ahead of German Manufacturing but the biggest winners Are India and China and I think this Should be ultra obvious to anyone who's Been following the drama in the energy Markets right because of the oil
Sanctions on Russia Putin is selling his Oil at tremendous discounts to China and India and there are reports that this Discount is as deep as 40 percent so Let's sit back and really just think About it right Germany is suffering 40 Higher energy costs while China and India are enjoying 40 cheaper energy Right that is a huge operating margin Gap that's only going to compound man After month year after year and According to Alliance we can see that Germany is slowly losing their price Competitiveness over the years against China which has improved dramatically Basically it's much cheaper to make Stuff in China versus Germany and the West in general and I think we can Understand how important cheap oil and Gas are ever since the start of the Conflict China has been enjoying cheap Russian energy and we can see this Incredible drop in manufacturing costs In China in 2022 and things are going to Get worse as China begins to reopen Their economy the problem Germany faces Now is having to Source energy from the International markets at a higher price Now because Russian energy is being Absorbed by Asia the price of the Remaining Supply will naturally increase And there are still two wild cards left Floating around now the first is Russia's oil production cuts and the
Second is China's reopening now the Production costs are pretty Straightforward right if Russia cuts Supply deep enough the demand for energy Could spill over to the gas market and Spike up gas prices as well but China's Reopening is the biggest issue for German Industries now if the reopening Goes smoothly Germany is in trouble we Have Goldman Sachs estimating that brand Could could Rise by 15 per barrel if Chinese oil demand recovers by just 1 Million barrels per day and here's the Crazy part China won't be paying the Market price they can get discounted Barrels from Russia he'll beat Germany Who will be paying more this is why we Keep saying that the oil markets is Splitting the two one price for the East And another prize for the West courtesy Of the energy sanctions and the price Caps however Germany is trapped because There are signs that they are trying to Move away from China they are making the Age show mistake of trying to mix Politics with business we have Germany's Finance Minister saying that Dr trade Dependency on China is dangerous he Wants to reduce Chinese dependence Saying in a tweet that how they need to Learn from their experiences with Russia And how Germany needs to be rely on more Free trade with value Partners right Basically he's on board with the idea of
Decoupling with China and trading more With their Western allies and I don't Think there's a clearer sign that Deglobalization is real and it's only Accelerating but if you're a German Manufacturer this should freak you out Right because whether you like it or not China's consumer class is rising and They are also still the walls Factory Now in fact China is still Germany's Biggest trading partner for seven years Straight enjoying almost 300 billion Euros in trade so if you move away from China you might cut yourself away from a Huge consumer base and your import Course could also rise now Germany is Working on a strategy to exclude using Suppliers from authoritarian States and Imposing stricter requirements for German firms dealing with China and if This goes through manufacturing costs Might Skyrocket and inflict more pain on German Industries so things are looking Rather risky in Germany right now the Decks is looking strong but there are Ton of hit wins come coming for Germany Now we're talking about melting energy Costs and a potential move away from Cheap Chinese raw materials plus we also Have Germany including a huge amount of Debt at a high interest rate that they Have to pay back you can't subsidize Energy costs forever you are just Trading short-term pain for longer term
Inflation now inflation in Germany has Slowed down to 9.2 percent in January But that is still extremely high for Developed country and that is after all The energy subsidies which means German Consumers are still getting squeezed and They are purchasing power is evaporating And that's why German Industries today Are truly suffering and if I had to put My money somewhere it wouldn't be in Europe cheap energy is everything and Unfortunately Germany has the short end Of the stick so let me know what you Think how bad is the situation in Germany are German Industries in trouble Or other fears just overblown let me Know in the comments below stay safe be Sure to smash the like button and Subscribe as we navigate through these Crazy times
