Germany is on Track to Meeting its Gas Saving Target

IMF News, August 12, 2022

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A partial shutoff of Russian gas would reduce gross domestic product by almost 3 percent next year and raise inflation significantly, with effects potentially worse if the winter is particularly cold.
Germany, like other European Union member states, agreed to cut gas consumption by 15 percent between August 2022 and March 2023 to avoid gas shortages and spiraling prices.
Germany is already on track to achieve the 15 percent target: gas consumption was down by about 17 percent in May, 8 percent in June and 15 percent in July compared with averages of the past five years.

Temperature unlikely to be the main explanation: the number of “heating degree days” was similar in June and July to the same months in previous years.
Soaring energy costs appear to be the primary cause:
- Gas prices for businesses in June were up by 267 percent compared with the previous five years.
- Large industrial users, including carmakers, are making especially severe cuts and switching to renewable energy where possible.

Short-term costs from gas saving:
- Manufacturing and services activity contracted in July for the first time in two years, according to purchasing managers’ surveys.
IMF growth projections for Germany (revised down due in large part to higher energy costs):
- 1.2 percent in 2022
- 0.8 percent in 2023

Government action:
- The Federal Cabinet on August 4 approved a temporary levy that will encourage gas savings by raising prices paid by households (and businesses) from October.
- The government indicated an intention to accompany the levy with additional relief to households, which should ideally take the form of targeted income support.
IMF-suggested measures to increase gas savings and reduce economic strain:
- Compensate users for reducing gas consumption.
- Establish programs to exchange gas heaters for electric heat pumps.
Rationale:
- Higher household gas savings would relieve firms from some pressure to save gas, enabling burden-sharing that could lower the risk of a recession.

Source: IMF web page "Germany is on Track to Meeting its Gas Saving Target" by Yushu Chen and Galen Sher, August 12, 2022.