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Supply delays hurt Germany's post-COVID recovery

October 29, 2021

Consumer demand is driving continued recovery, but Europe's largest economy grew by a less-than-expected 1.8% in the third quarter. Supply chain hold-ups prevented some manufacturers from producing at full capacity.

Production of a VW electric vehicle at a German factory
As well as supply chain delays, inflation accelerated for the fourth month in a row in October, reaching 4.5%.Image: Matthias Rietschel/dpa/picture alliance

Supply bottlenecks hampering manufacturers held back the German economy in the third quarter, official data showed Friday.

Europe's largest economy grew by 1.8% quarter on quarter in adjusted terms, according to the Federal Statistics Office. That figure was short of the 2.2% expected by Factset economists.

Growth in the second quarter was revised up to 1.9% from 1.6%. However, the economy remains 1.1% below its pre-COVID-19 pandemic level.

German economy slows

Consumer demand rebounded

Much of the increase in the July-September period was driven by consumer demand, after restrictions on the hospitality sector, shops, and sports and fitness facilities began to be lifted from mid-May.

But global supply chain shortages caused by rebounding demand following the pandemic continue to impact the country's manufacturing and industrial sectors.

Despite some German manufacturers having full order books, the bottlenecks prevented them from producing at full capacity, due to a lack of raw materials and semi-finished goods — particularly semiconductors.

Germany's automotive sector has been forced to cut production and shut down lines for weeks at a time.

Bottlenecks to remain for several months

Fritzi Kohler-Geib of KfW bank warned the supply chain delays "will probably only ease next year."

Inflation has climbed to its highest level since 1993, reaching 4.5% in October, with energy prices soaring by 18.6%, raising concerns that the recovery will lose speed in the final quarter.

The official forecast is for a 2.6% GDP rise for the whole year, down from the April forecast of 3.5% or higher. But growth next year is expected to hit 4.1%.

Jens-Oliver Niklasch, a senior economist at LBBW bank, said that "all in all, we are still on the road to recovery."

mm/rt (AFP, dpa, Reuters)