“The Risk Of Insolvency is Increasing”

As Senior Economist at Deutsche Bank Research, Eric Heymann analyzes energy and climate policy developments, German industry, and the transport sector. The voice of the economy is currently in high demand: Heymann has been receiving significantly more inquiries from investors for months, especially from the U.S. and the UK. Many want to hear the economic forecast, assessments of the energy supply, or the latest aboutGermany’s financial situation. In an interview with packaging-360.com, he talks about the current challenges the German industry is facing.

Is an investment in Germany as an industrial location still lucrative?

Heymann: That’s a pretty sweeping question, and there’s no blanket answer to it. It depends very much on the industry in question and on individual companies. There are also many economic and political uncertainty factors. However, we can already see that some location factors in Germany have worsened in an international comparison, such as wage and energy costs or digitization.

What changes do you see coming towards us and the packaging industry in particular in the near future?

Heymann: At the moment, the high energy prices are a particular cause for concern. This will also leave its mark on the profit and loss accounts. The risk of insolvency is increasing. This has also been confirmed by a survey conducted by the Federation of German Industries (BDI). Short-time work – it’s good thing that we have it as a buffer –is likely to gain in importance again because high energy prices will lead to production cuts. Politicians must not wait too long with aid programs. Many people are not yet aware of the extent of the crisis.

Take the paper industry for example. It has 40,000 employees and is one of the biggest gas consumers in Germany. Could a production stop have devastating consequences?

Heymann: Yes, from discussions with companies in the sector, I have learned how to switch to other energy sources or increase energy efficiency even more. For example, drying processes can be slowed down. But in the end, the expensive and scarce resource of energy makes paper prices and, therefore, packaging and end products even more expensive.

At FACHPACK, you will be talking about the turn of the times and challenges for the global economy and packaging: can you outline the turn of the times?

Heymann: Turn of the times is indeed a good term. You can also call the current energy crisis a game changer with regard to Germany as an industrial location. To illustrate: in 2021, the manufacturing sector in Germany generated just under 21 percent of total gross added value . The importance of the manufacturing sector in Germany is traditionally greater than in the other major EU economies, for example around twice as high as in France. The expected structurally higher energy prices will put pressure on the energy-intensive sectors at the beginning of the industrial value chain. And at the end of this value chain, we are also losing net value added in individual sectors, for example in the automotive industry as a result of the switch to electromobility.

It is to be feared that, in view of the current high energy prices in Germany, companies will more often opt for foreign locations when making new investments. In the future, we will have to distinguish more between German industrial companies on the one hand and Germany as an industrial location on the other.

What solutions do you see?

With regard to energy prices, an expansion of the energy supply, which politicians are also trying to achieve, will help. Structural breaks in the labor market could be mitigated by the demographic factor, because the baby boomer generation is gradually retiring. Industry can be strengthened through more automation. However, automation is also associated with energy consumption. And here, Germany is currently not doing well. We should think even more European than before and make better use of the different location conditions in the EU.

And what about the latest energy-saving tips? What do you think about them?

Saving energy undoubtedly helps. But, so far, it has also come at the price of reduced industrial production. We also need to be aware of what the big energy consumers are. For example, electricity consumption by private households in Germany accounts for only about 5 percent of final energy consumption. We need a lot of energy for mobility, heat, and industrial processes.  The chemical industry in Germany alone consumes five times as much energy as the whole of Denmark in a year.

As important as savings are, the fact remains that we are currently facing a supply crisis on the energy market. That’s why we should  strengthen supply above all. Every kilowatt hour also counts when it comes to supply.

By Anna Ntemiris

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