In Germany, shortages cloud growth prospects

In Germany, shortages cloud growth prospects
In Germany, shortages cloud growth prospects

Berlin (AFP)

When international trade coughs, Germany catches a cold: shortages of materials on world markets will clearly slow down the recovery of the largest European economy, dependent on its export industry, according to growth forecasts revised sharply on Thursday.

The country’s main economic institutes (DIW, IFO, IFW, IWH and RWI) now expect GDP to grow by 2.4% in 2021.

The latest April estimates predicted growth of 3.7%, after a historic drop of 4.9% in 2020.

“The GDP has risen sharply since the decline in infections in the spring,” the institutes noted in a press release. “But for the manufacturing sector, supply problems are holding back production.”

The pandemic has destabilized global supply chains, leading to bottlenecks in electronics, wood, plastics and steel markets, among others.

“This has a slowing effect on production and on our turnover,” Ralph Wiecher, chief economist for the organization of VDMA machine tools, told AFP.

In 2022, the German economy should nevertheless “return to normal use of its capacities” and the increase in GDP will reach 4.8%, before falling back to 1.9% in 2023, according to the institutes.

– Debt brake –

Apart from the pandemic, “supply bottlenecks constitute the greatest risk for the development of the economy,” the Ministry of the Economy commented on Thursday.

On the political level, this restrained recovery is likely to further complicate the already difficult negotiations between parties in an attempt to form a new government after the legislative elections.

The Social Democrats, narrowly victorious in the ballot, and the Greens are calling for a generous public spending policy to prevent a too abrupt slowdown in the recovery, even if it means continuing to put national deficit limitation rules on hold.

The constitutional rule of the “debt brake” prohibits the government from borrowing more than 0.35% of its GDP per year. It was nevertheless put on hold in 2020 and 2021 to face the health crisis.

Britannia Seaways freighter docked in the port of Cuxhaven, Germany, December 8, 2020 Patrick Stollarz Patrick STOLLARZ / AFP / Archives

Unlike the left, the Liberals of the FDP, involved in these three-party negotiations, want to return to this discipline and demand tax cuts, which would deprive the federal state of resources to finance programs to support the economy.

“In an ideal world, without a crisis, without a major event requiring a sudden increase in the level of debt, we can consider that the debt brake is too restrictive”, for their part argued the economists of the institutes during a press conference on Thursday.

But “such a world does not exist”, they added, defending the maintenance of rules allowing “to discipline fiscal policy” to have leeway in the event of a crisis.

– “Difficult autumn” –

According to a study by the public bank KFW, one in two German SMEs (48%) is currently facing delivery problems.

“The German economy is more internationally connected, on which it is more dependent than many other EU countries,” Carsten Brzeski, economist for the ING bank, told AFP.

“As a result, it will reach its pre-crisis level later than most other countries,” he adds.

Industrial production plunged 4% in August over one month, as did orders, which tumbled 7.7%.

Exports, which have been rising steadily since the first wave of Covid-19 in April 2020, fell 1.2%.

The automotive sector, the heart of the national economy but weighed down by the scarcity of semiconductors, is in great difficulty.

Production line at the Volkswagen plant in Zwickau, Germany February 25, 2020 Ronny Hartmann AFP/Archives

“The German economy must prepare for a difficult autumn”, recently summed up the industry lobby BDI.

The institutes expect standardization in 2022.

But some anticipate a longer supply crisis: According to a survey by consulting firm Inverto, three-quarters of business leaders believe it will last for the next 18 months.

These shortages could exacerbate the rise in prices which is already worrying German households.

Driven by energy prices, inflation in September reached its highest level since 1993, at 4.1%.

This explosive cocktail of low growth and high inflation would recall the post-oil crisis period in the 1970s.

© 2021 AFP

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