Supply Woes Send German Business Confidence to Six-Month Low

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German business confidence took another hit in October as global supply logjams damp momentum in the manufacturing-heavy economy.

A gauge compiled by the Munich-based Ifo Institute dropped for a fourth time in a row and more than economists predicted. At 97.7, it’s now at the lowest level in six months, with expectations also on the decline.

The figures point to the mounting challenges facing German businesses, who are particularly exposed to supply disruptions given the nation’s reliance on industry. Recent company surveys suggest the weakness is also spilling into services as consumers turn wary of quickly rising prices.

Additional uncertainty stems from ongoing coalition talks following September elections. With the Social Democrats, the Greens and the liberal FDP searching for common ground, there are open questions over how business-friendly the new government will be.

“Supply problems are giving businesses headaches,” Ifo President Clemens Fuest said in a statement. “Capacity utilization in manufacturing is falling. Sand in the wheels of the German economy is hampering recovery.”

Germany’s leading economic institutes have already slashed their joint 2021 growth forecast for Europe’s largest economy, arguing that the bottlenecks will push much of the recovery into next year. While they previously expected output to reach pre-crisis levels toward the end of 2021, they now predict that happening next spring.

The assessment was echoed by the Bundesbank, which said on Monday that growth will slow considerably in the fourth quarter because of the supply chain problems and weaker momentum in services. It also said Germany’s economy won’t reach its 2019 level in the fall, as previously expected. 

The business-confidence report comes just a few days before European Central Bank officials gather to assess the state of the euro-area economy. So far, policy makers have argued that supply shortages will delay rather than derail growth, and that price pressures will soon moderate.

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