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The Guardian - UK
The Guardian - UK
Business
Jasper Jolly

BASF to cut 2,600 jobs as energy crisis puts Germany on track for recession

Chimneys and gas tanks are at the BASF chemical plant in Ludwigshafen, Germany
Chimneys and gas tanks are at the BASF chemical plant in Ludwigshafen, Germany. The group has operated at the site for 157 years. Photograph: Michael Probst/AP

The German chemicals company BASF has said it will cut 2,600 jobs as Europe’s largest economy braces for recession triggered by the energy crisis that intensified after Russia’s full-scale invasion of Ukraine a year ago.

The year was “dominated by the consequences of the war in Ukraine and in particular by increased raw material and energy prices”, BASF said in a statement on Friday. It paid additional energy costs of €3.2bn (£2.8bn) globally during 2022.

BASF is the world’s largest chemicals group and one of the mainstays of German industry, with 157 years at its Ludwigshafen site on the river Rhine near Frankfurt. It produces chemicals used to make countless products across the world, ranging from fertilisers to plastics, cars and pharmaceuticals.

However, it has been particularly affected by its dependence on gas piped from Russia, and has previously announced a €7.3bn writedown on plants in Russia that have been expropriated. It said it will close one of two ammonia plants, and two plants for plastic chemicals, as well as shift some production away from Germany.

The invasion of Ukraine, which started on 24 February 2022, prompted a scramble for European industry to find alternative sources of energy, after decades of reliance particularly on Russian gas. Energy prices surged as a consequence.

Germany’s economy has faltered because of the crisis. German GDP fell by 0.4% in the final three months of 2022, according to data published on Friday by the country’s Federal Statistics Office. “Continuing large price increases and the ongoing energy crisis had a negative effect on the German economy towards the end of the year,” the office said.

BASF made a net loss of €627m in 2022, as demand for its products dropped and materials prices increased. Some of the blow was cushioned by higher prices to reflect the increased costs it was bearing, so overall sales grew by 11% to €87.3bn.

The company said: “The high level of uncertainty that arose over the course of 2022 due to the war in Ukraine, high raw materials and energy costs in Europe, rising prices and interest rates, inflation and the development of the coronavirus pandemic will continue in 2023. All of these factors will negatively impact global demand.”

“Europe’s competitiveness is increasingly suffering from overregulation, slow and bureaucratic permitting processes, and in particular, high costs for most production input factors,” said Martin Brudermüller, the BASF chief executive.

“All this has already hampered market growth in Europe in comparison with other regions. High energy prices are now putting an additional burden on profitability and competitiveness in Europe.”

Brudermüller in April 2022 suggested that moving from Russian gas could “destroy our entire economy”. “It is a fact that Russian gas supplies have so far been the basis for our industry’s competitiveness,” he said, in an interview with the Frankfurter Allgemeine Zeitung.

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