German factories turned out 0.8 percent fewer goods in August than in July and 2.9 percent less compared to February, just before Russia invaded Ukraine, the national statistics office reported.

Among industries that are particularly energy-intensive—including ceramics, chemicals, and metals—production slid 2.1 percent month on month and 8.6 percent below February’s volume.

New orders for factory goods and retail sales both declined in August, boding more losses through the fall months, The Wall Street Journal noted.

Germany is Europe’s largest economy and its financial well-being depends on manufacturing more than other nations in the region do.

Europe, and industry-heavy Germany in particular, have faced a growing energy shortage over the past 12 months.

The continent, especially Germany, receives much of its natural gas supply from Russia. Last fall, Russia began cutting back deliveries through its all-important Nord Stream 1 pipeline as a political pressure tactic. The pipeline carried about 35 percent of Russia’s European gas exports.

In June, Russia cut the pipeline’s flow by 75 percent after NATO nations enacted sanctions against a variety of Russian exports and financial transactions.

Russia then shut it off for 10 days in July for “routine maintenance.” In August, it closed the pipeline entirely for an indefinite period, citing equipment problems. Last month, the pipeline and its non-operative sister Nord Stream 2 were severely damaged by explosions under the Baltic Sea in what Western authorities deem “an act of sabotage.”

It remains unclear when repairs might begin.

Businesses have taken the greatest beating from the energy shortage, with the government prioritizing household uses. Germany’s government has instituted rationing of natural gas in some forms of use.

Germany’s stores of natural gas are at 92 percent of capacity ahead of winter, so the country is unlikely to run out of natural gas, barring a dramatically cold and prolonged winter, analysts told the WSJ.

However, gas prices are unlikely to ease any time soon and will remain high indefinitely into next year as the nation seeks to rebuild gas supplies toward the following winter.

Germany and other European Union nations have vowed to end all Russian gas imports before next year and stop importing Russian oil by the end of this decade.

To make up the shortfall, the U.S. has increased its shipments of liquefied natural gas to the continent, straining supplies and raising prices at home.

TRENDPOST: Germany is Europe’s front-line victim of the energy crisis wrought by Russia’s shutdown of natural gas exports to Europe and Western nations as a result of sanctions imposed upon Moscow by NATO and the United States. 

Germany already is mired in Dragflation, with the factory output that drives its economy shrinking while inflation runs at 10.9 percent.

TREND FORECAST: The rest of Europe will follow Germany deeper into Dragflation, to varying degrees.

Nations in northern Europe that have strong manufacturing sectors, such as Poland, and countries deep in debt such as Italy, face the worst outcomes.

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