German industry stalls on lack of raw materials

Photo: AP Angela Merkel

German industry is slowing the post Covid-19 recovery as input supply bottlenecks undermine the output growth, Reuters reported. Deficit of semiconductors, timber and other intermediate goods is seen as a major factor behind the unexpected slump of German industry in April, following a negative revised results for March, the Federal Statistics office said. The industrial output dropped 1.0% on the month after a downward revised increase of 2.2% in March.

The drop was driven by a decrease in consumer goods production of more than 3% and a plunge in construction activity of more than 4%.

The weaker than expected industrial figures suggest that the German economy will have to rely on household spending to support a still-fragile recovery from the coronavirus crisis. So despite well-filled order books, manufacturing will only make a limited contribution to overall economic growth in the second quarter. The economy ministry confirmed industrial output was being hampered by supply bottlenecks for intermediate products such as semiconductors and timber. But it added that business sentiment surveys were suggesting an improvement in coming months.

Germany's Ifo business sentiment brightened in May to hit a two-year high as Covid-19 curbs were eased and infections fell, suggesting a swift summer recovery after the economy shrank more than expected in the first quarter.

Industrial output should recover somewhat in May and June which should enable overall economic growth of at least 1% in the second quarter. In the first quarter, German GDP contracted by 1.8% on the quarter and by 3.1% on the year, significantly weaker readings than the Eurozone average. Chancellor Angela Merkel said at the virtual opening of a Bosch semiconductor plant in Dresden that the chip shortages in manufacturing were complicating Germany's economic recovery from the coronavirus crisis.

The problem has forced many German companies to announce short-time work and scale back production, with the scarcity of components also expected to lead to higher end-prices for consumers and overall inflationary pressures.

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