German business confidence falls amid persistent supply squeeze

Bloomberg

German businesses are growing increasingly concerned that a global supply squeeze and rising infections will damp the economic recovery.
A gauge by the Munich-based Ifo Institute falls to 99.4 in August from 100.7 in July, more than economists predicted in a Bloomberg survey. An index measuring expectations also falls, while current conditions were judged more favourably.
Strong consumer spending boosted Europe’s largest economy more strongly than initially expected in the second quarter, as services came roaring back after pandemic curbs were loosened.
Germany’s strong manufacturing sector though is being held back by a stubborn shortage of parts and raw materials, caused in part by coronavirus outbreaks in Asia. Most businesses expect these problems to persist until next year.
Ifo’s survey also showed that concerns about the economic outlook are growing in the hospitality and tourism sectors.
While government officials are trying to avoid another lockdown, rising infections and a slowdown in the nation’s vaccination campaign have raised uncertainty. The Bundesbank has warned that growth this year may turn out somewhat lower than the 3.7% forecast in June.
Strong consumer spending in Europe’s largest economy fuelled a faster-than-expected recovery in the second quarter — one that is now looking increasingly uncertain.
German output increased 1.6% in the three months through June, compared with an earlier estimate of 1.5%, the statistics office said.
The rebound was driven by a 3.2% jump in household spending, strong fiscal support and rising capital investment. While this puts the economy on track to reach pre-crisis levels in the next few months, according to the Bundesbank, risks to the outlook are emerging that mean this year’s rebound may not be as strong as previously anticipated.
Manufacturers have faced unprecedented struggles with shortages of raw materials and other supply-chain bottlenecks. Rising infections pose an additional threat, even though government officials are trying to steer clear of another lockdown.
“Supply-chain frictions have become a bigger threat to the economy than Covid,” said Carsten Brzeski, an economist at ING. “It currently looks as if these problems could easily last until the end of the year, potentially putting a cap on growth.”
In June, the Bundesbank predicted an expansion of 3.7% for 2021. Economists surveyed by Bloomberg in August forecast growth of 3.2%.
A purchasing manager’s index showed on Monday that private-sector activity in Europe’s largest economy slowed in August, with services taking over as main growth driver.