Shortages of materials on world markets will seriously hamper the recovery of Europe’s largest economy. As a result, the main economic institutes have downgraded their growth forecasts for 2021.
In a joint statement, the main German economic institutes (DIW, IFO, IFW, IWH and RWI) have revised their growth forecast downwards for 2021, to 2.4% while they forecast 3.7% in April, after falling 4.9% in 2020.
The current tension in the markets for the supply of raw materials, by slowing down production in the manufacturing sector, is the cause of this deterioration in the short-term outlook. And the monthly index for measuring the confidence of industrial company executives is affected by falling for the third time in a row.
The pandemic has destabilized global supply chains, leading to bottlenecks especially in the electronic components, wood, plastics and steel markets. “This has a slowing effect on production and on our turnover,” Ralph Wiecher, chief economist for the VDMA machine tools organization, told AFP. For its part, the Ministry of the Economy confirmed that “supply bottlenecks constitute the greatest risk for the development of the economy”.
According to a study by the public bank KFW, one in two German SMEs (48%) is currently facing delivery problems. “The German economy is more internationally connected, on which it is more dependent than many other EU countries,” Carsten Brzeski, economist for the ING bank, told AFP. “As a result, it will reach its pre-crisis level later than most other countries,” he adds.
Fall in orders and production
Industrial production plunged 4% in August over one month, as did orders, which tumbled 7.7%. Exports, which had steadily increased since the first wave of Covid-19 in April 2020, fell 1.2%. The automotive sector, the lung of the national economy but weighed down by the scarcity of semiconductors, is in great difficulty. “The German economy must prepare for a difficult autumn”, recently summed up the industry lobby BDI.
In 2022, the German economy should nevertheless “return to normal use of its capacities” and the increase in GDP will reach 4.8%, before falling back to 1.9% in 2023, according to the institutes.
But some anticipate a longer supply crisis: According to a survey by consulting firm Inverto, three-quarters of business leaders believe it will last for the next 18 months. These shortages could exacerbate the rise in prices which is already worrying German households. Driven by energy prices, inflation in September reached its highest level since 1993, at 4.1%. This explosive cocktail of low growth and high inflation is said to be reminiscent of the post-oil crisis period in the 1970s. It had caused the unemployment rate to soar in most European economies.