Germany’s economy is currently plagued with supply chain disruptions along with demand-supply mismatch for the automobile industry due to chip shortage, based on which GlobalData, a leading data, and analytics company, has revised down its 2022 real GDP growth forecast for the country at 4.4%, which is a downward revision of 0.1 percentage point amid concerns over Omicron variant.
German economic growth steam reached 10% Y-o-Y in Q2 2021 with a strong rebound in private consumption, state spending, and growth in the service sector. However, real GDP grew at a slower pace of 2.5% (Y-o-Y) in Q3 2021. As of November 2021, the government’s decision to impose restrictions along with barring the unvaccinated from the most essential business could hinder overall business activity.
Gargi Rao, Economic Research Analyst at GlobalData, comments: “Controlling the new variant of COVID-19 and introduction of new modernization policies might have varied impact on the economy. Supply chain disruptions in raw materials along with semiconductor chips shortages will continue to hamper German manufacturing output in the coming quarter. Moreover, tightening of measures to combat COVID-19 along with slow industrial growth are expected to retard economic growth prospects in the short-term.”
The composite Purchasing Managers’ Index (PMI) continued to decline since July amid sluggish production but remained above the 50-mark. The PMI for manufacturing declined from 65.9 in July 2021 to 57.4 in November 2021, indicating a contraction in manufacturing activity.
Rao continues: “Input prices for manufacturers rose steeply compared to output prices, which put downward pressure on production. New export orders declined due to supply bottlenecks. The manufacturers continued to face upward pressures in operating expenditures due to higher energy costs.”
The overall business outlook in the next few quarters will remain clouded by rising inflationary pressures, sluggish industry output, higher energy prices, and possible fourth wave of COVID-19. The industrial production growth slowed down from 35.4% (Y-o-Y) in April to 2.6% (Y-o-Y) in August 2021, before turning into a contraction of 1.3% in September 2021 owing to global chips shortages and tightening job market.
The intensification of supply bottlenecks for raw materials and intermediate goods, material shortages, and rising costs crippled the outlook for Germany’s automobile industry, construction sector, and electronics industry.
Rao concludes: “The need of the hour is to critically balance the goals of maintaining economic stability through reduction of input costs, mitigate climate change risks, and containing the spread of COVID-19. Supply chain disruptions and higher prices are expected to ease in the coming months with support from the government and conducive external markets. As the fears about Omicron eases, along with the push to increase vaccination drive, the German economy is expected to be on a recovery path in 2022.”
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