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Frankfurt: Germany is directly affected by fluctuations in global trade: a shortage of materials in global markets will hold back the recovery of the first European economic power that relies heavily on its exporting industrial sector, sharply reduced growth forecasts showed Thursday.
In their semi-annual forecasts, major economic institutes cut their 2021 forecast to 2.4 percent from the 3.7 percent they forecast in April.
The institutes said in a joint statement that “the Corona pandemic is still charting the course of the economic situation in Germany,” which prevents a return to normal economic activity.
The institutes are DIW, EVO, IWH and RWI.
Supply basket bottlenecks
After a rapid growth in the spring, the German economy has faltered due to bottlenecks in supplying baskets “which have hampered industrialization” which means that “only consumer-related service sectors are growing”, according to the institutes.
The economic institutes expected to “gradually overcome” the repercussions of the epidemic and the shortage of goods in 2022, and raised the growth prospects for that year from 3.9 to 4.8 percent.
Earlier this week, the International Monetary Fund cut its global growth forecast, including those for Germany, blaming supply disruptions.
Confederation of German Industries (BDI) Joachim Lange said businesses should prepare for a “hard fall”, in comments last week in response to questions about the decline in export figures.
Ralph Fishers, chief economist at VDMA Group for Mechanical Industries, told AFP that companies were facing shortages across the board, “whether it’s timber for box making, packing supplies, steel, which is important for our sector, or computer chips and semiconductors.”
Customer orders also began to decline at the companies represented by Fishers due to the lack of necessary supplies.
“They don’t get plastic supplies, so why buy machines to process plastics?” he said.
The deteriorating economic situation caused a decline in a number of key indicators in Germany.
Last week, the Federal Statistics Agency, Destatis, announced that the industrial production trajectory fell in August to a decrease of 4 percent on a monthly basis, while orders fell by 7.7 percent after record figures in July.
The shortage of goods is taking a hit on companies’ production and revenue, Fishers says, with mechanical engineering one of the sectors worst hit.
Only the main car sector in Germany suffers more from a scarcity of materials, a situation driven in large part by a shortage of supplies of semiconductors, the component that goes into the manufacture of conventional and electric vehicles.
Production lines in Germany are halted at Volkswagen, Opel and Ford as bottlenecks worsen, while BMW and Mercedes-Benz are delivering vehicles lacking components, according to the German weekly Wirtschaftsfoch.
Germany’s exposure to the problem of global supplies and its dependence on exports means that the largest economic power in Europe will reach pre-epidemic levels “late than most other countries,” according to Carsten Brzeski, head of the overall research department at ING Bank.
Brzeski said that supply chain problems have “dumped” the strong growth that the government’s recovery program has contributed to, according to Brzeski.
The course of any additional stimulus measures will be determined by the outcome of the ongoing talks to form a government, as the Social Democrats prepare to lead the next German government after last month’s elections.
German government spending is constrained by the so-called “debt brake” that limits the deficit to 0.35% of GDP in normal periods, but has been temporarily suspended in response to the Corona epidemic.
Such brakes on debt are important, but the current frameworks are “very restrictive”, meaning that the government has had to “prioritize” spending, said Oliver Holtmüller, deputy head of the Hull Institute for Economics (IHW) at a press conference.
The scarcity of materials contributed to the increase in inflation and the rise in prices in Germany at the highest rate since 1993, reaching 4.3 percent on an annual basis.
In addition to the reasons for the shortage of materials, the price hike was driven by the repercussions of the imposition of a one-time tax on the background of the epidemic, in addition to the sharp rise in energy prices, which is a phenomenon at the level of Europe, and amounted to 14.3 percent, according to Destatis.
Economic institutes estimated that consumer prices will rise by an average of three percent in 2021, while the rate of increase will slow in 2022, recording 2.5 percent.