Germany’s Economy Hindered by Supply Chain Problems

Persistent shortages are dragging down the German economy, Europe’s largest, as companies struggle to fill orders because the necessary parts or raw materials are not arriving from abroad.

Surveys and data released this week indicate that the ongoing crunch in the supply chain is the main factor slowing Germany’s manufacturing powerhouse, causing the government to scale back its forecast for economic growth for 2021. Many economists are now predicting that the situation won’t improve until well into 2022.

Industrial production shrank by 1.1 percent in September compared with the previous month, according to data released on Friday by the Federal Statistics Office. The drop was led by a fall in the production of mechanical, electrical and data processing equipment.

More than 90 percent of all manufacturers in the automobile and electrical equipment industries said that their production had been hampered by a lack of supplies, according to a survey released Wednesday by the Ifo Institute. Some economists are predicting the shortages could result in a “bottleneck recession.”

And last month the German government cut its projection for economic growth for the year to 2.6 percent, down from a 3.5 percent estimate in April, citing supply chain issues and rising energy prices.

“There will not be the final spurt we had hoped for,” said Peter Altmaier, the minister of economy in Chancellor Angela Merkel’s caretaker government.

But the government predicted the economy would gain momentum in 2022, and lifted its estimate for next year’s growth to 4.1 percent from 3.6 percent, reflecting more shipments of microchips and raw materials.

That projection reflects the expectation that a backlog of orders will be able to be filled in the coming months. Data released on Thursday showed industrial orders rebounding less than expected at an increase of 1.1 percent in September, after an unexpectedly large drop in August.

Given the demand, some economists believe that with an increase in shipping predicted for the first part of next year, the German economy is positioned to improve, although it will not be immediate.

“There is a potential for an upside,” said Carsten Brzeski, an economic analyst with ING Bank. “Only a small improvement in industrial production is required to see positive growth.”

One of the biggest threats, however, remains the coronavirus pandemic.

Germany finds itself facing a fourth wave of infections, with a record number of new infections, 33,949, recorded in a 24-hour period on Thursday. That could prevent people from going out shopping or dining, endangering a projected increase in private consumption that has proved one of the bright spots in the German economy, and hitting the country just as the holiday period arrives, a high point for consumer spending.

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