Supply chain problems create headache for next German government

Global supply chain bottlenecks forced the German government to downgrade its 2021 growth forecast on Wednesday as it prepares to hand over the reins of a spluttering economy to the country's next coalition.

Shoppers walk past a store in central Berlin. Some shops could be hit by supply chain issues.
Shoppers walk past a store in central Berlin. Some shops could be hit by supply chain issues. Photo: picture alliance/dpa | Carsten Koall

Supply chain disruptions and shortages of raw materials, including plastics, metals and paper, have choked off the recovery from the impact of the coronavirus pandemic in Germany. 

As a result, the government lowered its forecast for gross domestic product growth to 2.6 percent this year, Economy Minister Peter Altmaier told ZDF public television, from 3.5 percent previously.

“It will still be one of the strongest growth rates in Europe,” Altmaier said.

“But many goods are not being delivered because there is a shortage of raw materials in many areas and that is simply having an effect,” the minister said.

“Higher energy prices are also a factor. At 2.6 percent, the economy will still expand strongly this year. But it will only really begin to boom next year with growth of over four percent.”

Earlier this week, German retail experts advised people to get their Christmas presents early due to the shortages. 

READ ALSO: Why people in Germany should buy Christmas gifts early this year

A scarcity of components has had a particularly hard impact on the country’s manufacturing-driven economy, with production lines grinding to a halt in Germany’s important automotive sector.

The question of how to kickstart the economy will also be at the top of the agenda as the parties seeking to form the next German government pick up talks on Wednesday.

In their initial agreement, the Social Democrats, Greens and Free Democrats (FDP) pledged massive investments and less red tape to prepare Germany for a greener and more digital future.

But they vowed not to introduce any tax hikes and to maintain Germany’s strict debt rule, which limits deficits to 0.35 percent of GDP in normal times, a red line for the FDP.

Finding a way to deliver on both will require “creativity” by the parties’ own admission, and could see the new coalition house their investment programme somewhere else, such as public lender KfW, as per one mooted solution.

READ ALSO: KEY POINTS: What Germany’s three parties in coalition talks have agreed

Difficult climate 

The new forecast comes against the backdrop of a raft of tough news.

The German Ifo institute’s closely watched business climate indicator fell for the fourth consecutive month in October, according to figures published earlier this week.

In services, manufacturing and trade, the mood among businesses deteriorated – only in construction did the sector see the situation improving.

“Supply problems are giving businesses headaches,” Ifo president Clemens Fuest said in a statement, describing the bottlenecks as “sand in the wheels of the German economy”.

The increasingly pessimistic short-term outlook for the economy was a “wink” in the direction of the potential coalition partners, Jens-Oliver Niklasch, senior economist at LBBW said.

“Additional burdens for the economy are to be avoided whenever possible,” was the message to take away, Niklasch said.

As supplies have dried up, costs have risen, with the prices faced by industry rising by 14.2 percent year on year in September, a rate not seen since the 1970s.

Meanwhile, other indicators are turning downwards: German exports fell in August for the first time since April 2020, near the start of the pandemic.

Industrial output slumped by four percent in August, too, while new orders fell 7.7 percent.

Under pressure from “surprisingly long-lasting bottlenecks in components, raw materials and transport, more forecasts for the economy will be revised downwards,” said Ulrich Kater, chief economist at Deka Bank.

READ ALSO: German shops hit by supply problems ahead of festive season

Gathering clouds

Earlier in the month, Germany’s leading economic institutes (DIW, Ifo, IfW, IWH and RWI) slashed their forecast for growth in 2021 to 2.4 percent, down from their earlier estimate of 3.7 percent in April.

After rapid growth in spring, the German economy has been held back by supply bottlenecks “hampering manufacturing”, the institutes said in a statement.

But pandemic effects and bottlenecks would be “gradually overcome” in 2022, they predicted, pushing their outlook for 2022 up to 4.8 percent from 3.9 percent.

“It is now that much more important that a new government reduces obstacles and burdens and put the emphasis on innovation to avoid stalling the economic recovery,” Altmaier commented on the publication.

The powerful IG Metall union made a similar plea, as it called for members to take to the streets on Friday, adding to the pressure on the next government.

The parties could “preach modernisation”, said union head Jörg Hofmann, but “action has to follow quickly”.

By Sebastien ASH

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Where in Germany do people have the highest disposable income?

An economic study has shown huge regional differences in income throughout Germany. So which parts of the country have the most to spend each month, and which are feeling the squeeze?

Where in Germany do people have the highest disposable income?

A study by the Economic and Social Sciences Institute (WSI) of the Hans-Böckler foundation reveals stark regional differences in disposable income in Germany. In some cases, households had as much as double the spending money of those in other parts of the country. 

Here’s where people have the most – and least – disposable income each month.

What is disposable income?

The WSI calculated disposable income as the sum of income from wealth and employment, minus social contributions, income taxes, property taxes and other direct benefits or taxes.

What’s left is the income which private households can either spend on consumer goods or save.

The study, which was based on the most recent available national accounts data for 2019, looked at the disposable income of all of the 401 counties, districts and cities across Germany.

Which regions have the highest and lowest disposable incomes?

The study found that the regions with the highest disposable incomes were in the southern states.

Heilbronn in Baden-Württemberg had the highest disposable income of all 401 German counties and independent cities – with an average per capita disposable income of €42,275. The district of Starnberg in Bayern followed in second place with €38,509.

READ ALSO: REVEALED: How much do employees really earn across Germany’s states?

By comparison, per capita incomes in the cities of Gelsenkirchen and Duisburg in North Rhine-Westphalia were less than half as high, at €17,015 and €17,741 respectively. These regions had the lowest disposable income in the country. 

The study also found that, more than thirty years since German reunification, the eastern regions continue to lag behind those in the west in terms of wages.

According to the WSI, the Potsdam-Mittelmark district is the only district in the former east where the disposable per capita income of €24,127 exceeds the national average of €23,706.

Do regional price differences balance things out?

The study also showed that regionally different price levels contribute to a certain levelling out of disposable incomes, as regions with high incomes also tend to have higher rents and other living costs.

“People then have more money in their wallets, but they cannot afford more to the same extent,” WSI scientist Toralf Pusch explained.

READ ALSO: EXPLAINED: When will Germany raise the minimum wage?

Therefore, incomes in the eastern states, adjusted for purchasing power, are generally somewhat higher than the per capita amounts would suggest.

That could explain why, even after price adjustment, the cities of Gelsenkirchen and Duisburg in western Germany continue to be at the very bottom of the list.

Saxon-Anhalt’s Halle an der Saale, on the other hand, which has an average disposable income of only €18,527, benefits from the lower prices in the east.