German economy setback: Trouble for Merkel as production SHRINKS – worrying new report

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A worrying report by the Federal Ministry of Economics has found industrial output fell by one percent in April compared to March. The shortfall has been attributed to a lack of intermediate products, including electrical semiconductors and timber.

The slump was also driven by a decrease in consumer goods production of more than three percent and a plunge in construction activity of more than four percent.

A subsequent survey by the German Chamber of Commerce and Industry (DIHK) suggested around two-thirds of industrial firms are concerned about the economic impact of the shortage of raw materials.

Economists had expected an overall increase in production of 0.5 percent in April after an increase of 2.2 percent in the previous month.

Federal Ministry of Economics, said: “After the increase in March, there was a slight damper in April, which was caused by a shortage of intermediate products.”

Germany still remains a long way away from pre-pandemic levels as production figures show output was 5.6 percent lower than in February 2020.

The report by the ministry found industrial production, which serves the vast manufacturing industry, slumped by 0.7 percent.

The decline in production has had a knock-on effect across the product supply chains.

Economist Jens-Oliver Niklasch from the Mittelstand-minded universal bank, said: “In view of the high order backlog, that is a slight disappointment.”

Alexander Krüger, chief economist at private German bank Bankhaus Lampe, added: “Once again it is evident that the industry is still affected by indirect pandemic pressure.

“Longer delivery times and material bottlenecks are actually signs of a booming economy, which doesn’t exist at the moment.”

The slowdown in production for industrial firms has also resulted in an increase in prices as demand continues to surge.

According to a survey by the German Chamber of Commerce and Industry (DIHK) 66 percent of firms are more concerned about energy and raw material prices than anything else.

This represents a significant increase from the 45 percent recorded at the height of the deadly wave of coronavirus at the start of the year.

The DIHK said: “Two-thirds of industrial companies now see energy and raw material prices as a risk to their economic development.

“No factor is mentioned more often in industry at the moment.”

Klaus Wohlrabe, an economist at the Institute for Economic Research (Ifo) added Germany’s world-renowned automotive industry has also scaled back its targets.

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He said: “The picture of production expectations in the individual sectors is very nuanced.

“The auto industry and its suppliers are significantly lowering their expectations, but they continue to expect production increases.”

Mr Wohlrabe added there were some signs of an economic bounce back in other sectors, with clothing manufacturers reporting for the first time in nine months plans to increase production.

In the first quarter of 2021, the German economy contracted by 1.8 percent.

The slump in GDP also represents a 3.1 decline on the previous year.

(Additional reporting by Monika Pallenberg)
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