Updates from the German economy
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German industrial production fell for a third consecutive month, in the latest indication that the eurozone’s manufacturing sector is grappling with bottlenecks and component shortages.
Production in June fell 1.3% from the previous month to 6.8% below pre-pandemic levels, the German Federal Statistics Agency said on Friday.
Capital goods such as vehicle manufacturing were the main drag on production as automakers struggled to source semiconductors. Vehicle production fell 0.9% from May and was almost a third lower than before the start of the pandemic.
Construction activity declined 2.6 percent, while consumer goods increased 3.4 percent.
Economists have warned that supply problems will persist into the second half of the year and hamper Germany’s otherwise strong economic rebound after the historic recession sparked by last year’s pandemic.
“With the manufacturing sector still not operating at full capacity, there is now a question mark as to whether the economy will return to its pre-pandemic level by [the fourth quarter] as we and many others have planned, ”said Andrew Kenningham, Chief Economist for Europe at Capital Economics.
The lobby of German automakers last month cut its production forecast for this year by 400,000 units, warning that the chip shortage could set European car manufacturing back in the “medium term”.
European leaders have pledged to help expand the continent’s chip manufacturing capacity in response to the global shortage; the EU plans to double its share of the global chip market by 2030. But that will do little to stem the immediate shortages.
Munich’s Ifo Institute said on Friday that German manufacturers across all industries lowered production expectations in July, recording a drop in its index from 27 in June to 22 this month.
“Supply bottlenecks for important intermediate products are now being felt,” said Klaus Wohlrabe, head of investigations at Ifo.
This was consistent with the IHS Markit Purchasing Managers Index, which reported on Monday that although overall German manufacturing activity rose sharply in July, some companies warned that production levels were being limited by shortages of materials.
Although the pressure on supply chains appeared to ease somewhat, supplier prices have risen at an all-time high in response to increased demand, according to the companies surveyed.
“Order books grew at a near-record pace in July and lingering supply concerns contributed to the weakest 12-month production outlook since last December,” said Trevor Balchin, chief economic officer at IHS Markit.
Germany recorded lower than expected GDP growth in the second quarter of this year, unlike France, Italy and Spain, all of which exceeded economists’ expectations.
Carsten Brzeski, global head of macro at ING, said the continued slowdown in German manufacturing was the reason for the country’s performance in the second quarter. But, he said, “once the friction in the supply chain starts to dissolve, the. . . the growth of industrial production will surge ”.