Germany’s 2021 Growth Forecast Slashed on Supply Crunch

(Bloomberg) --

Germany’s leading research institutes slashed their joint 2021 growth forecast for Europe’s biggest economy as supply logjams delay the nation’s recovery into next year.

The downgrade to a 2.4% expansion in gross domestic product, from 3.7% previously, reflects a relentless shortage of inputs, a lack of shipping capacity and -- more recently -- a spike in energy costs that is threatening rebounds across the globe. The outlook for 2022 was upgraded to 4.8% from 3.9%.

“Supply bottlenecks for intermediate products are hampering production in the manufacturing sector -- as a result, only the consumer-related service industries are growing,” the institutes said in a joint press release on Thursday.

Germany has struggled to keep up momentum this year, with its manufacturing-heavy economy particularly exposed to supply disruptions. Gauges of business and investor confidence have been on a steady decline in recent months, and company surveys suggest weakness is spilling into services as consumers turn wary of quickly rising prices.

The estimate for growth is more pessimistic than most other projections, including that by the International Monetary Fund published earlier this week. The institutes -- DIW, Ifo, IfW, IWH and RWI -- also pushed back their earlier prediction that output across most segments would reach pre-crisis levels by the end of the year. They now only see that happening “in spring 2022.”

They also are “uncertain” on when next year supply issues will subside: both an earlier and a later relaxation of the situation are “conceivable,” the institutes said. 

Service-sector activity “will remain below the usual level during the cold season, even with low levels of infection,” according to the report, which is prepared twice a year for the economy ministry and helps guide the government’s own forecasts and budget planning.

In a separate report, the German government predicted a “sideways” development for the economy in the fourth quarter.

“Industrial output fell sharply in August and industrial activity is likely to remain subdued in the months to come,” the Economy Ministry said in its monthly report, adding that its outlook for the sector remains “cautiously optimistic.”

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