By Michael Nienaber

BERLIN, (Reuters) – German business spirits declined for the fourth straight month in October due to supply issues in Germany’s manufacturing industry and a surge in energy prices. This slows down the rate of recovery in Europe’s largest economy following the pandemic.

According to the Ifo institute, Monday’s business climate index was 97.7 in comparison with a September revised of 98.9 (upwardly revised). This reading was lower than the 97.9 forecasted consensus in a Reuters survey.

Clemens Fuest, President of Ifo stated that “supply problems are giving businesses headaches” and added that the manufacturing sector was experiencing a decline in capacity.

The German economy’s wheels are clogged with sand, which is hindering its recovery.

Klaus Wohlrabe from Ifo said that half of all industrial firms are considering raising prices to address continuing supply issues.

Wohlrabe stated that bottlenecks in intermediate products and raw materials have shifted from manufacturing into other areas of the economy like retailing. As a result, not all Christmas gifts will be ready for delivery on time.

Wohlrabe indicated that the supply problem would reduce growth to around 0.5% during the fourth quarter.

In the three-month period April through June, Germany’s economy grew by 1.6% quarter on quarter.

On Friday, the Federal Statistics Office will release a quick estimate of GDP growth for the third quarter. The quarterly increase in GDP growth is expected to be 2.2%, according to analysts.

After leading institutions cut their combined forecasts to 2.4% last week, the government is expected to reduce its economic growth forecast this Wednesday. In 2022, they predict growth of 4.8%.

Thomas Gitzel, VP Bank economist said that the coronavirus crisis had turned into a scarcity crises.

Gitzel stated that the surge in oil and energy prices, along with the shortages, is making it harder for recovery.

Another analyst pointed out rising COVID-19 infected Germans, which may lead to new restrictions on retailers, bars, and restaurants during winter.

Joerg Kraemer, economist at Commerzbank (DE) said that companies expected politicians to respond to the recent increase in coronavirus infection with new restrictions.

Kraemer said that the coronavirus virus is causing factory closures especially in Asia. This will increase material shortages in Germany.

“German economy won’t grow in fourth quarter.” “Stagflation appears to be on the horizon in this quarter,” he stated.