Supply headache drops German business morale to six-month low By Reuters – News Couple

Supply headache drops German business morale to six-month low By Reuters

© Reuters. File photo: Containers are transported to loading terminals in the port of Hamburg, Germany, March 11, 2020. REUTERS/Fabian Bemmer

Written by Michael Nienber and Palaz Kourani

BERLIN/FRANKFURT (Reuters) – German business sentiment deteriorated for a fourth consecutive month in October, as supply bottlenecks in manufacturing, rising energy prices and rising coronavirus infections slowed the pace of Europe’s largest economy’s recovery from the pandemic.

The Ifo Institute said Monday that its business climate index fell to 97.7 from an upwardly revised 98.9 in September. This is the lowest reading since April and below expectations of 97.9 in a Reuters poll.

The weaker-than-expected business sentiment survey was followed by a bleak outlook from the Bundesbank, which said in its monthly report that economic growth is likely to slow sharply in the fourth quarter.

The Bundesbank added that full-year growth is now likely to be “significantly” below its 3.7% forecast in June.

“Supply problems are causing headaches for companies,” Ifo president Clemens Fuest said, adding that capacity utilization in manufacturing was declining.

“Sand in the wheels of the German economy hampers recovery”.

Half of the industrial firms plan to raise prices due to persistent supply problems, said Klaus Wallrabe, an economist at IFO, a record number in the survey.

Wohlrabe added that bottlenecks for intermediate goods and raw materials extend from manufacturing to other sectors of the economy as well, such as retail, meaning not every Christmas gift will be available for delivery in time.

Wallaby said supply problems would slow growth to nearly 0.5% in the fourth quarter.

The German economy expanded 1.6% qoq in the three months from April to June.

The Federal Statistics Office will release an urgent estimate of third-quarter GDP growth on Friday. Analysts expect quarterly expansion of 2.2% from July to September.

The government on Wednesday is likely to cut its forecast for economic growth this year, after leading institutes cut their joint forecast to 2.4% from 3.7% last week. For 2022, the institutes forecast 4.8% growth.

“The coronavirus crisis has turned into a scarcity crisis,” said Thomas Getzel, the bank’s vice president, economist.

Getzel added that in addition to supply problems, sharp rises in gas and energy prices are complicating the recovery.

Other analysts pointed to a spike in COVID-19 infections in Germany, which could lead to renewed restrictions on retailers, bars and restaurants during the winter months.

Commerzbank (DE 🙂 economist, Jörg Kramer, said businesses expect politicians to react to the recent surge in coronavirus infections with new restrictions.

In addition, the current wave of the Corona virus is leading to factory closures, especially in Asia, which will exacerbate material shortages in Germany, according to Kramer.

“It is unlikely that the German economy will grow much in the fourth quarter. Stagflation is looming for at least this quarter,” he said.

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