Rising energy prices as triggers and intensifiers of an economic crisis

The connection between rising energy prices and an intensifying economic crisis is unmistakable. Higher production costs force companies to either increase the prices of their products or reduce their margins. This is particularly weakening the competitiveness in international markets, especially for energy-intensive industries such as chemicals and steel.Production declines, relocations abroad and closures of numerous companies are the direct result of this development.

Declining purchasing power and weak demand

Private households feel the additional burden on electricity, gas and other energy sources immediately. Rising energy costs mean that less disposable income is left over for consumption. Domestic demand is falling, which is directly affecting the growth of retail and other economic sectors. The combination of declining purchasing power and growing cost of livingOccurs as an inflationary intensifier and makes the situation for low-income households even more difficult.

Burdens for industry and public budgets

The energy-intensive industry in particular is forced to limit or even give up its production, as other regions of the world offer attractive alternatives with lower energy prices. As a result, innovative locations lose their market relevance, while highly productive jobs disappear and entire value chains are interrupted. The attempt of politics andGovernments to counteract this through subsidies and relief packages also burdens public budgets and significantly restricts future fiscal leeway.

Investment backlog and innovation brake

Companies cut or postpone planned investment projects as the economic conditions are too uncertain and the cost of energy is too volatile. A decline in private and public investments reduces the long-term innovation and growth dynamics of the entire economy. The lack of new projects blocks structural change and strengthens theexisting crisis.

Uncertainty of supply, price fluctuations and loss of trust

Uncertain supply situations and strong price fluctuations lead to a general loss of confidence in economic stability. Consumers and companies are holding back with larger purchases and investments, which leads to a further decline in demand. Bottlenecks in the network, scarcity of raw materials and persistent supply chain disruptions lead to sales losses and a fragileoperational planning security.

Unemployment, energy poverty and social unrest

Rising operating costs force many companies to dismiss workers or introduce short-time work. This accelerates the recession and noticeably increases unemployment. Low earners are particularly affected by energy poverty, as they have to spend ever larger shares of their income on basic needs. The state is forced to increase social spending to meet the consequences ofcushioning poverty and social division, which in turn burdens public finances and further limits the fiscal ability to act.

Energy prices as an economic key variable

Rising energy prices act like a fire accelerator for economic crises. They influence production, employment, consumption and the financial stability of companies and public budgets. Without decisive measures, there is a risk of a sustainable weakening of the economy and a profound social division that can affect generations.