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German business confidence falls on 'bottleneck recession'

By Frank Prenesti

Date: Friday 24 Sep 2021

German business confidence falls on 'bottleneck recession'

(Sharecast News) - German business morale fell for the third month running in September, as manufacturers experienced a "bottleneck recession" due to the supply chain crisis, according to a survey released on Friday.
The Ifo institute said problems in the procurement of raw materials and intermediate products "are putting the brakes on the German economy" as its business climate index fell to 98.8 from an upwardly revised 99.6 in August.

In manufacturing, the Business Climate Index fell sharply to 20 from 24.2 in August, their lowest level since the height of the Covid pandemic in March 2020.

"Last spring's great optimism in expectations has almost completely evaporated. Order books are still relatively full, but order intake is levelling off," said Ifo president Clemens Fuest.

The service sector saw an improvement to 19.1 from 17.8 due to "appreciably more confident expectations", he added, but warned assessments of the current situation "were slightly worse".

"In hospitality and tourism, a degree of optimism has returned after last month's major scepticism. In contrast, expectations in logistics deteriorated in parallel with manufacturing."

Ifo economist Klaus Wohlrabe said almost 80% of manufacturers surveyed had complained of intermediate goods shortages, up from 70% last month.

"The supply crisis will remain until at least the end of the year. The peak lies ahead."

On Wednesday, Ifo cut its growth forecast for the German economy for this year as supply chain disruptions and a scarcity of chips and other intermediate goods were slowing down the recovery from the pandemic.

The institute now sees Germany's gross domestic product growing 2.5% this year, down 0.8 percentage points from its previous forecast, and 5.1% next year, up 0.8 points.

The weaker-than-expected rebound in 2021 follows a 4.6% plunge of overall economic output in 2020 caused by coronavirus restrictions on public life and business activities to contain the spread of the highly infectious disease.

A separate PMI survey published on Thursday showed Germany's economic recovery from the pandemic lost momentum in September as activity in both the manufacturing and services sectors slowed amid supply bottlenecks and waning catch-up effects.

The government, which has forecast growth of 3.5% for this year and 3.6% for next, will update estimates next month.

A survey by the VDMA engineering industry association last week showed most German mechanical engineering firms were facing serious supply chain problems, with production growth expected to be affected next year.

Germany goes to the polls on Sunday to in the country's national election after which Chancellor Angela Merkel plans to stand down.

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