FRANKFURT: Germany's industrial output slumped by four percent in August while new orders fell 7.7 percent. - AFP

FRANKFURT: Global supply chain bottlenecks forced the German government to downgrade its 2021 growth forecast yesterday as it prepares to hand over the reins of a spluttering economy to the country's next coalition. Supply chain disruptions and shortages of raw materials, including plastics, metals and paper, have choked off the recovery from the impact of the coronavirus pandemic in Europe's top economy.

As a result, the government yesterday lowered its forecast for economic growth to 2.6 percent this year from 3.5 percent previously. "Bottlenecks and high energy prices are both equally slowing the progress of the economy in Europe and worldwide," German Economy Minister Peter Altmaier said in a press conference.

The economic recovery is expected to be pushed into next year, with the government forecasting growth of 4.1 percent, up from its previous estimate of 3.6 percent. In 2023, growth would then fall back to 1.6 percent. A scarcity of components has had a particularly hard impact on the country's manufacturing-driven economy, with production lines grinding to a halt in Germany's important automotive sector.

Rapid growth in 2022 would depend on "how quickly chipmakers can increase production of semiconductors", Altmaier said, noting that demand for the components would continue to be strong. Though the minister said he did not expect there to be another coronavirus lockdown over the coming winter months in Germany, but that rising case rates could still have "negative economic consequences". The German economy would reach its pre-crisis level at the "end of the first quarter" in 2022, "one quarter later than originally thought", Altmaier said.

Difficult climate

The new forecast comes against the backdrop of a raft of tough news for the German economy. The German Ifo institute's closely watched business climate indicator fell for the fourth consecutive month in October, according to figures published earlier this week. "Supply problems are giving businesses headaches," Ifo president Clemens Fuest said in a statement, describing the bottlenecks as "sand in the wheels of the German economy".

As supplies have dried up, costs have risen, with the prices faced by industry rising by 14.2 percent year on year in September, a rate not seen since the 1970s. Meanwhile, other indicators are turning downwards: German exports fell in August for the first time since April 2020, near the start of the pandemic.

Coalition mission

The question of how to get the economy rolling again will be at the top of the agenda as the parties seeking to form the next German government pick up talks yesterday. In their initial agreement, the Social Democrats, Greens and Free Democrats (FDP) pledged massive investments and less red tape to prepare Germany for a greener and more digital future.

The September drop confounded some analysts who had been expecting a gain and on an annual basis output is now down 1.0 percent from last year, having been higher in previous months. Industrial production was also 9.5 percent below the pre-pandemic February 2020 level, in seasonally and calendar-adjusted terms. "The main problem is well known: it's persistent supply chain disruptions," said LBBW economist Elmar Voelker. Germany's auto industry has been particularly hard hit due to a shortage of semiconductors, with production way below pre-pandemic levels.

Meanwhile, other indicators are turning downwards: German exports fell in August for the first time since April 2020, near the start of the pandemic. Industrial output slumped by four percent in August, too, while new orders fell 7.7 percent. Meanwhile in France, industrial output recorded its first fall in several months in September, dropping by 1.3 percent from August, according to the French statistics agency INSEE. Automobile manufacturing suffered a 14.6 percent monthly drop. If third quarter output was up 2.8 percent from last year, French industrial production remains 5.2 percent below its pre-pandemic level, said Insee.

Separately, aircraft manufacturer Airbus said that it delivered 36 planes in October, down from 40 in September, as it reported that some of its suppliers are having trouble increasing parts production after more than a year of working at a slower pace. Such supply difficulties as economies reopen plus new COVID lockdowns elsewhere and transport delays have hindered many businesses and helped fuel a surge in inflation along with worries about the future of the global economic recovery. In Spain, industrial output edged 0.3 percent higher after three months of drops, the INE statistics agency said. - AFP