Stalling growth creates headache for next German government

1. Altmaier economic projections
German economy minister Peter Altmaier poses with a placard showing the economic projections for the fall in Germany at the end of press conference on updated economic forecast in Germany on October 27, 2021 in Berlin (Photo: AFP)
FRANKFURT, Germany — 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.اضافة اعلان

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 Europe’s top economy.

As a result, the government on Wednesday lowered its forecast for economic growth to 2.6 percent this year from 3.5 percent previously.

“Bottlenecks and high energy prices are both equally slowing the progress of the economy in Europe and worldwide,” German economy minister Peter Altmaier said in a press conference.

The economic recovery is expected to be pushed into next year, with the government forecasting growth of 4.1 percent, up from its previous estimate of 3.6 percent. In 2023, growth would then fall back to 1.6 percent. 

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.

Rapid growth in 2022 would depend on “how quickly chipmakers can increase production of semiconductors”, Altmaier said, noting that demand for the components would continue to be strong.

Though the minister said he did not expect there to be another coronavirus lockdown over the coming winter months in Germany, but that rising case rates could still have “negative economic consequences”. 

The German economy would reach its pre-crisis level at the “end of the first quarter” in 2022, “one quarter later than originally thought”, Altmaier said. 

Difficult climate

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

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.

“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”. 

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.

Coalition mission

The question of how to get the economy rolling again will 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 program somewhere else, such as public lender KfW, as per one mooted solution.
Germany’s “stuttering economic engine” was a “wake-up call” for the coalition negotiators, said Joachim Lang, head of the influential German industrial lobby the BDI. 

“Investments are now essential,” Lang said, calling for faster planning and approval processes, as well as tax reforms.

To avoid “choking off” the recovery, the challenge over the next months — and likely for the next government — was to “reduce obstacles and burdens, speed processes up and put the emphasis on innovation”, Altmaier said at the press conference.

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