German industry paralysed by shortage of inputs
Euro Macro: Gap between German orders and production at unprecedented levels - A number of key data for Germany’s industrial sector was published late last week. They showed that the gap between growth in orders, on the one hand, and production in the manufacturing sector, on the other, widened even further in September.
The volume of new orders received by the manufacturing industry increased by 1.3% mom in September, whereas manufacturing output fell by 1.5% mom. As a result of different trends in orders and productions since around the middle of 2020, the gap between the level of manufacturing orders and the level of manufacturing production has risen to unprecedented highs.
As the manufacturing sector makes up about a quarter of Germany’s GDP, the contraction in manufacturing output has reduced GDP growth in Germany by around 1.5 percentage points since the start of this year. This is an important factor behind the growth differential between Germany and the eurozone as a whole, with Germany’s GDP expanding by 1.8% in total during 2021Q1-Q3, versus 4% for the eurozone.
The details of the European Commission’s sentiment survey for the manufacturing sector in Q4 (published on 28 October), clearly indicate that production in Germany is hindered by a serious lack of materials and intermediate goods and that this problem is worse than in the eurozone on aggregate. Only 17% of German manufacturers reported that production was not limited by any factors in Q4, which is the lowest level since the start of the series in 1985 and well below the long-term average value of 66%. When looking at the factors that are limiting production, 86% of all respondents in Germany mentioned a shortage of material and/or equipment, which is well above the eurozone total of 53%. This is sharp contrast to the decline in manufacturing output during the aftermath of the Global Financial Crisis, when the majority of manufacturers reported a lack of demand as the factor that was limiting production.
Looking forward, based on the rise in orders, German manufacturing production should accelerate when global supply bottlenecks in material and/or equipment diminish, which we expect to happen in the course of next year. Still, the rebound in production probably will be more modest than the current gap between orders and production would suggest, as part of the rise in orders for German manufacturers probably also reflects global shortage of certain products. In any case, we expect GDP growth in Germany to be well above the eurozone total in 2022 as the manufacturing sector rebounds (we have pencilled in 4.8% for Germany and 3.9% for the eurozone total). (Aline Schuiling)