German companies halt production to cope with rising energy prices
Economics Minister Robert Habeck describes the development as "alarming" for German SMEs
Ibrahim Al-TarikMay 8, 2025
German manufacturers are halting production in response to the surge in energy prices caused by Russia's tightening of gas supplies - a trend the government describes as "alarming".
Economy Minister Robert Habeck said industry has been working hard to reduce its gas consumption in recent months, in part by switching to alternative fuels such as oil, using more efficient processes and reducing production.
But he said some companies have also "shut down production altogether," a development he described as "alarming."
'This is not good news,' he said, 'because it may mean that the industries involved are not only being restructured but are undergoing a rupture - a structural rupture that is taking place under enormous pressure.'
He spoke while Russia suspended the flow of gas through the Nord Stream 1 pipeline for three days for scheduled maintenance work. The outage comes at a time when European countries are already suffering from drastic cuts in Russian gas supplies that have pushed gas prices to record highs.
German business leaders say the pain from higher energy costs is being exacerbated by recent interest rate hikes in the US and slowing growth in China, one of Germany's biggest export markets.
Habeck's comments echo those of Siegfried Russwurm, head of Germany's largest business lobby, the BDI, who said this week that industry gas consumption fell 21 percent in July compared to a year earlier.
"However, this often has nothing to do with increases in efficiency, but with a dramatic drop in production," he said. "This is not a success, but the expression of a massive problem."
Russwurm said the electricity price for 2023 had risen to more than 700 euros per megawatt hour, "more than 15 times the previous years".
"The situation for many companies is toxic, or will soon be, not only because of the gas shortage, but mostly because of the ridiculous price hikes," Russwurm said.
Habeck said the rising gas prices are affecting everyone from large industrial groups to small trading companies and Germany's Mittelstand. "Anywhere where energy is an important part of the business model, companies experience sheer fear," he said.
The business model of large parts of the German manufacturing industry is based on the abundant gas from Russia, which is cheaper than gas from other regions. That competitive advantage "isn't going to return any time soon, if it ever will," Habeck said.
The pessimism was underscored by a recent survey by the Ifo Institute, one of Germany's leading economic research institutes, which showed German business confidence fell for the third straight month.
The index, which is based on a monthly survey of 9,000 companies, fell to a two-year low of 88.5 from 88.7 the previous month.
According to a survey published on Wednesday by the DMB, a lobby group for medium-sized companies, 73 percent of companies see themselves as "heavily burdened" by the higher energy prices. When asked about business prospects for the next six months, 10 percent said their "existence was threatened."
"Confidence in the government's ability to deal with economic crises is dwindling and small and medium-sized companies in particular feel left alone by the authorities," said Marc Tenbieg, head of the DMB.
Business is particularly disappointed with the government's slowness in putting together a third relief package to cushion the rise in energy prices.
The cabinet led by Chancellor Olaf Scholz had retired this week at Schloss Meseberg, a government guest house outside Berlin, and there were widespread expectations that it would unveil a range of new measures when it concluded. However, Scholz said at the final press conference that it was not time yet.
However, Finance Minister Christian Lindner insisted that the next package of measures would be "massive", amounting to "single-digit billions" for this year and "double-digit billions" for 2023.
The two previous aid packages that were put together after Russia invaded Ukraine had a total volume of 30 billion euros.
Lindner called for reforms in the electricity market, where high gas prices are automatically causing electricity prices to rise, giving some utilities windfall profits.
Like Lindner, Habeck said the issue is "fixing the root cause" of higher energy prices, not just mitigating their effects.
