German economic dynamics

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German industrial output has fallen for the third consecutive month. This is the latest sign that the Eurozone manufacturing industry is struggling to cope with supply bottlenecks and shortages of parts.

The Federal Statistical Office of Germany said on Friday that June output was 1.3% lower than the previous month and 6.8% lower than the pre-pandemic level.

As automakers find it difficult to purchase semiconductors, capital goods such as auto manufacturing are the biggest drag on output. Automobile production fell by 0.9% from May and was nearly a third lower than before the pandemic began.

Construction activity fell by 2.6%, while consumer goods increased by 3.4%.

Economists warn that supply problems will continue into the second half of the year and hinder Germany’s strong economic rebound from last year’s historic pandemic-driven recession.

“Because the manufacturing industry has not yet reached full capacity, whether the economy will return to pre-pandemic levels is still a question mark. [the fourth quarter] As we and many others have been predicting,” said Andrew Kenningham, chief European economist at Capital Macros.

The lobby of the German automaker last month Lower production forecast 400,000 vehicles will be reduced this year, warning that a shortage of chips may hinder European car manufacturing in the “mid-term”.

European leaders have pledged to help expand chip manufacturing capabilities on the European continent to cope with global shortages; EU plans Doubled its share The share of the global chip market by 2030. But this will not do anything to stop the immediate shortage.

The Ifo Institute in Munich said on Friday that manufacturers in various industries in Germany have lowered their July production expectations, with its index falling from 27 in June to 22 this month.

Klaus Wohlrabe, head of investigation at Ifo, said: “The supply bottleneck of important intermediate products has now become apparent.”

This is in line with IHS Markit’s Purchasing Managers Index, which reported on Monday that although overall German manufacturing activity increased significantly in July, some companies warned that production levels were limited by material shortages.

According to the companies surveyed, although the pressure on the supply chain seems to have eased, supplier prices have risen at a record rate in response to increased demand.

Trevor Balchin, head of economics at IHS Markit, said: “The backlog of orders in July grew at a near-record rate, and continued concerns about supply resulted in the weakest 12-month production outlook since December last year. “

Germany’s GDP growth in the second quarter of this year was lower than expected, in sharp contrast with France, Italy and Spain, all of which exceeded economists’ expectations.

Carsten Brzeski, ING’s global macro director, said that the continued slowdown in the German manufacturing industry was the reason for the country’s performance in the second quarter. However, he said, “Once the supply chain frictions begin to resolve, … industrial production growth will flood.”