Economy threatens stagnation: German production remains “in the valley of tears”

The economy threatens to stagnate
German production remains “in the valley of tears”

German industry is not getting off the ground: Contrary to expectations, production in the manufacturing sector fell by 1.1 percent in September. The companies are sitting on bulging order books. In many cases, however, the orders cannot be processed.

The German economy, plagued by considerable material shortages, surprisingly cut back production in September for the second month in a row. Industry, construction and energy suppliers together produced 1.1 percent less than in the previous month, as the Federal Ministry of Economics announced. In contrast, the economists surveyed had expected growth of 1.0 percent. In August, at 3.5 percent, there was the sharpest decline since the first corona wave in spring 2020.

Production is currently still 9.5 percent lower than in February 2020, the month before the start of the restrictions due to the corona pandemic in Germany. “The supply bottlenecks for raw materials and intermediate products that have been going on for a long time are thus reflected on a broader front,” the ministry said of the development. “Until the shortages are permanently resolved, the outlook for the industrial economy will remain gloomy, although demand remains at a very high level.”

Industry alone produced 1.5 percent less in September. While the automotive industry was able to increase its production by 2.1 percent, emissions in similarly weighty mechanical engineering fell by 3.3 percent. There were also declines in other areas such as electrical equipment (-3.3 percent) or data processing equipment (-4.3) and metal products (-0.5). “Industrial production remains in the valley of tears,” said VP Bank’s chief economist, Thomas Gitzel. The companies are currently sitting on bulging order books. In many cases, however, the orders cannot be processed due to acute bottlenecks in preliminary products such as microchips.

Is recovery stalling?

“It’s like having a rope that can’t be pushed,” said Union Investment’s chief economist, Jörg Zeuner: “Companies want to produce more, but cannot process their orders because of a lack of preliminary products – as a result, production falls despite good demand . ” The construction industry was able to increase its output by 1.1 percent in September. Energy generation was even increased by 1.0 percent.

Because of the flagging industry, experts assume that the recovery of Europe’s largest economy from the Corona crisis will come to a standstill in the current fourth quarter. In the summer quarter it was still enough to achieve economic growth of 1.8 percent. Because of the bottlenecks, the upswing this year will be a number smaller than originally thought, according to the prognosis of the federal government. It lowered its growth forecast for the current year to 2.6 percent from 3.5 percent previously. In 2022 there should be an increase of 4.1 percent.

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