© Reuters. FILEPHOTO: A general view of the street “Grosse Bergstrasse” during lockdown at Hamburg on May 11, 2021. REUTERS/Fabian Bimmer/File photoFRANKFURT – German economic growth could slow steeply in the fourth trimester of this year, as supply continues to be tight and services demand wanes. The Bundesbank released a regular monthly update on Monday.
Europe’s largest economy grew over the summer, but sudden supply-chain bottlenecks held back its huge car manufacturing sector. Economists also warned that higher energy prices and continued concerns about the coronavirus pandemic may have impacted consumer sentiment.
The Bundesbank stated that growth “is likely to slow substantially in the current quarter”, and added that the full-year forecast of 3.7% in June is unlikely to come to pass.
According to the bank, “The momentum that is building in the services sector will likely slow down significantly.” The bank stated that the delivery issues in manufacturing will continue to plague them.
According to the Ifo Institute, Monday’s announcement by the bank highlighted the central bank’s worries. The institute stated that company morale dropped for the fourth month straight in October due to supply bottlenecks continuing to restrict factory output.
Economists say the problem of shortages in semiconductors has impacted particularly hard on the car industry, causing a slowdown that could continue into next year. This will have a negative impact on growth over the coming months.
However, these troubles were entirely supply-driven as the Bundesbank stated that industrial orders had remained strong, which led to an “extremely large” gap between production and demand.
Services will likely suffer from the absence of pandemic-related controls, especially since coronavirus infection rates are continuing to rise above levels which were previously considered to be triggering restrictions.
In a statement, the Bundesbank stated that supply issues and higher prices for energy as well as the reversed reduction of value-added tax would continue to drive consumer prices higher. It is an echo of its earlier warnings.
It stated that “Overall the rate of inflation will likely continue to increase for the time being before slowly declining in the next year.”
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