Gas price break to ease recession and inflation in Germany

According to the proposal of the German government’s expert commission around half of the recently agreed €200bn fiscal package or about 2.5% of GDP could be used for a gas price break for households and industry. Details are scarce but we think around 60% of the gas price break funds could flow in 2023 with most of the rest in early 2024 and a limited stimulus later this year.

What you will learn:

• The plan effectively calls for the introduction of a block tariff latest by spring next year, where 70% of industrial firms’ and 80% of households’ previous year’s gas consumption are priced at a subsidised rate of 7c/kwh and around 8c/kwh in net terms, respectively, less than half the cost currently priced by future markets.
• The proposal is more ambitious than expected and presents a moderate upside risk to our growth forecast, which already assumed significant further fiscal support. It also signals downside risks to our inflation call depending on whether and how the statistics office will account for the measures in the official inflation data.
• We tentatively see the scale of possible GDP revisions at under half a percentage point for 2023. For reference, we forecast a 1% fall for German GDP in 2023 and see inflation slowing to 4.8% from 8% this year. We will await further details before making material forecast changes.