German exporters pinched by $69B price squeeze

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BERLIN- German exporters are in an “extreme price squeeze” and incurred extra costs of 70 billion euros ($69 billion) this year due to soaring producer and import prices, the Association of German Chambers of Industry and Commerce (DIHK) said on Wednesday.

According to surveys and calculations made by the Association, German companies raised the prices of their exported goods by 14.7 percent in the first half of the year, but producer and import prices rose about twice as fast.

“The resulting burden on German foreign trade amounts to 70 billion euros for the first six months alone,” Volker Treier, head of foreign trade at DIHK, told Reuters.

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“German foreign trade finds itself in an extreme price squeeze, from which it will not be able to free itself in the next few months,” said Treier, as companies only pass on part of their higher costs to overseas customers.

One issue is the weakness of the euro currency, which has fallen below parity with the dollar and tumbled to its lowest level in two decades, often making imported goods costlier.

Despite Russia’s invasion of Ukraine, supply shortages and coronavirus lockdowns in China, German exports actually increased by 13 percent in the first half of the year.

But according to DIHK calculations, adjusted for inflation, the real values are negative: exports have fallen by 1.5 percent.

“This means that German foreign trade is already in a recessionary phase,” said Treier.

According to the latest DIHK business survey, companies in key export sectors are particularly squeezed. For example, 17 percent of vehicle makers say they will not pass on cost increases to customers, and 35 percent of pharmaceutical companies also will not.

“Currently there are no signs that this tense situation will be resolved quickly,” said Treier, adding that some companies also feared weakening demand in major markets China and the United States.

Meanwhile, Germany’s government is concerned about possible problems with the coal supply for power plants in the autumn and winter due to low water levels on the river Rhine and the oil supply in eastern parts of the country, a document seen by Reuters said.

Europe’s biggest economy is trying to cut its dependence on Russian energy. However, weeks of critically low water levels on the Rhine river have disrupted logistics and added to Germany’s energy headache as industry temporarily switches to more coal and oil due to a steep fall in Russian energy imports.

“Due to very reduced domestic shipping, accumulated coal stocks could quickly fall,” a document entitled “Energy Supply Assessment,” drawn up by the Economy Ministry and seen by Reuters, said.

“Additional storage sites which have been and are being procured in southern Germany will probably not be filled by winter,” said the paper, referring to the southwestern state of Baden-Wuerttemberg, home to power plant operator EnBW.

It cited the low Rhine water levels which have reduced the volume of coal that can be transported by river barges.

A significant improvement is not expected, said the paper, and an overburdened rail system offers little relief.

On Wednesday, Germany’s Cabinet approved legislation to prioritize energy transport on part of the country’s rail networks. – Reuters

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