German business morale falls on manufacturing ‘bottleneck recession’

September 24, 2021

BERLIN (Reuters) – German business morale fell for the third month running in September, hit by supply chain problems that are causing a “bottleneck recession” for manufacturers in Europe’s largest economy, a survey showed on Friday.

The Ifo institute said its business climate index fell to 98.8 from an upwardly revised 99.6 in August. A Reuters poll of analysts had pointed to a September reading of 98.9.

“Problems in the procurement of raw materials and intermediate products are putting the brakes on the German economy,” Ifo President Clemens Fuest said in a statement.

“Manufacturing is experiencing a bottleneck recession.”

Adding to the uncertainty facing Germany’s economic outlook, the country votes in a national election on Sunday, after which Chancellor Angela Merkel plans to stand down. With the vote fractured, there are multiple potential coalition outcomes. (https://reut.rs/2ZeqYw3)

On Wednesday, Ifo said it had cut its growth forecast (https://reut.rs/3nU3Ux5) 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 COVID-19 pandemic.

The institute now sees Germany’s gross domestic product (GDP) 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 survey published on Thursday showed Germany’s economic recovery from the pandemic lost momentum (https://reut.rs/3hXp2yy) in September as activity in both the manufacturing and services sectors slowed amid supply bottlenecks and waning catch-up effects.

The government, which so far has been forecasting growth of 3.5% for this year and 3.6% for next, will update its estimates in October.

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

(Writing by Paul Carrel; Editing by Tomasz Janowski)

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