Delivery bottlenecks and material shortages are slowing down the recovery of the German economy more than expected.

In its current monthly report, the Bundesbank writes in its current monthly report that economic output will "probably still fall short of its pre-crisis level of the final quarter of 2019 even in autumn. As a result, gross domestic product (GDP) will grow significantly less" than expected in the June projection. At that time, the central bank had forecast GDP growth of 3.7 percent for the current year. Other institutes had also revised their forecasts downwards, in some cases significantly, in the past few weeks.

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"In the current quarter, macroeconomic activity is expected to grow significantly weaker," says the report published on Monday. According to the Bundesbankers, the strong momentum in the service sector is likely to subside considerably and the industry will continue to suffer from delivery problems.

The Ifo business climate index also suggests that the recovery of the German economy slowed in October.

The index of the Munich Ifo Institute, which records the sentiment of German companies, fell by 1.2 points compared to the previous month to 97.7 points.

It was the fourth decline in a row.

The last time the index fell in a row was in spring 2019, at the height of the Corona crisis.

The barometer published on Monday, which is based on a survey of around 9,000 companies, is considered an important economic indicator. 

"Sand in the gears of the German economy"

"Delivery problems are causing problems for companies," said Ifo President Clemens Fuest.

Capacity utilization in industry is falling.

It fell in October by 2.1 percentage points to 84.7 percent.

Fuest warned: "Sand in the gears of the German economy is holding back the recovery."

The pessimism runs through almost all industries.

The companies from industry, the service sector and retail all assessed their future prospects more negatively.

“The corona crisis has turned into a scarcity crisis,” explained Thomas Gitzel, chief economist at VP Bank.

The material shortages weighed heavily on industrial companies.

While industry and trade were also in a worse current situation than in the previous month, the service providers were somewhat more satisfied with ongoing business.

Overall, the mood in October was only better in the construction industry.

The sub-index rose for the sixth time in a row.

As low as last in spring 2020

Other sentiment indicators also point to your economic slowdown. The purchasing managers' index published on Friday by the London Markit Institute fell by 3.5 points in October to 52 points - the lowest value in eight months. This means that the value ranks just above the threshold of 50 points, which signals growth. The sub-index of German industrial production even slipped to 51.1 points. The value was last so low in spring 2020. The survey data indicated that economic growth in Germany was beginning to stagnate at the beginning of the fourth quarter of 2021, wrote Markit economist Phil Smith.

He assessed as "worrying" that the slowdown in growth coincided with an acceleration in the rise in purchase and sales prices of companies. In particular, the recent hikes in energy and fuel prices have contributed to exacerbating inflationary pressures. For the fourth quarter, therefore, a stagflation - an increase in prices in the event of economic stagnation - warned Commerzbank chief economist Jörg Krämer. The decline in the Ifo business climate is a “warning signal”. The companies suspected that the politicians would react to the rapidly increasing corona infections with new restrictions. "In addition, the new corona wave is leading to factory closures, especially in Asia, which will exacerbate the material shortage in this country," said Krämer.

The return of the German economy to its pre-crisis level this year is becoming increasingly unlikely, said ING chief economist Carsten Brzeski.

It is difficult to predict when the friction in the supply chains will be overcome.

It could even take until next summer for all disruptions to be resolved.

In terms of energy prices, too, he did not expect any relaxation until after the winter.