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Germany growth is being hampered by shortages

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Growth forecasts predict material shortages will significantly dampen Germany economic recovery, which is heavily reliant on its export industry.

germany economic recovery is dampened

Leading economic institutes (DIW, IFO, IFW, IWH and RWI) now forecast an increase of 2.4% in GDP in 2021. Latest estimate was for growth of 3.7% this year, after a historic decline of 4.9% in 2020.

In 2022, “the German economy should return to normal capacity utilization” and GDP growth should reach 4.8%, before falling back to 1.9% in 2023. “GDP is clearly recovering since the decline in infections in the spring,” the institutes note in a statement. “But for the manufacturing sector, supply problems are holding back production.”

Since “activity in the service sector is expected to remain below the usual level this winter despite low infections,” the institutes noted. “The German economy has a stronger connection to the international market, on which it relies more than many other European countries,” Carsten Brzeski, an economist at ING bank, told AFP.

A difficult autumn

“As a result, it will reach its pre-crisis level later than most other countries,” he adds. Apart from the pandemic, “supply bottlenecks are the biggest risk for the development of the economy,” the Ministry of Economy commented on Thursday.

In a study conducted by the state-owned KFW bank, one in two German SMEs (48%) is currently experiencing supply problems. Among other effects, the pandemic has caused supply chains to destabilize. It created bottlenecks for electronic components, wood, plastics, and steel. In Germany, where the export-oriented industry is a major factor, the consequences are particularly severe.

“This has a slowing effect on production and on our turnover,” Ralph Wiecher, chief economist for the machine tool organization VDMA, told AFP. In August, industrial production plunged by 4% over a month, as did orders, which fell 7.7%.

Exports, which had been rising steadily since the first wave of Covid-19 in April, fell by 1.2%. The automotive sector, the lung of the national economy but plagued by the scarcity of semiconductors, is in great difficulty.

For MetaNews.

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Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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