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Impact of High Energy Prices on Germany’s Potential Output
Author:
Miss Yushu Chen
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Ting Lan
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Ms. Aiko Mineshima
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Jing Zhou https://isni.org/isni/0000000404811396 International Monetary Fund

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Series:
Selected Issues Papers
Volume/Issue:
Volume 2023: Issue 059
Language:
English
Publication Date:
24 Jul 2023
DOI:
https://doi.org/10.5089/9798400248603.018
ISBN:
9798400248603
ISSN:
2958-7875
Pages:
14
Keywords:
Germany; energy prices; energy efficiency; productivity; potential output; potential growth; directed technical change; price effect; price signal; surge in energy price; effect favor; optimization problem; energy efficiency response; Energy conservation; Fuel prices; Global
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IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries. It is based on the information available at the time it was completed.
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The surge in energy prices since Russia’s invasion of Ukraine has reduced the energy-intensive sector’s production in Germany, although the non-energy intensive sector’s production has held up thanks in part to firms’ efforts to improve energy efficiency. Energy prices are expected to remain elevated in the foreseeable future, compared to pre-war levels, adversely affecting firms’ productivity and thus lowering Germany’s potential output. Economic modeling suggests that this effect could be around 1¼ percent of GDP in staff’s baseline, with some uncertainty around this estimate, depending on the ultimate magnitude of the energy price shock and the degree to which increased energy efficiency can mitigate it. Policies can promote effective adjustment to the shock by increasing productivity and maintaining strong price incentives to conserve energy and invest in renewable energy production.
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Cover Selected Issues Papers
Selected Issues Papers
Publisher:
International Monetary Fund