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1 Sept 2021

Inflation of Raw Materials Slowed Down German Factories

The Index Today

A survey showed on Wednesday that German manufacturers are struggling to meet the strong demand for industrial goods in August due to the low supply for raw materials and components such as semiconductors which are caused by inflation.

IHS Markit’s final Purchasing Managers Index (PMI) for manufacturing, which is fifth of Europe’s biggest economy, fell at 62.6 from 65.9 last July 2021.

It is recorded as the lowest in six months but still comfortably above the 50 mark that separates growth from contraction.

Previous data show that the German economy rebounded in the second quarter with a recorded rate of 1.6% growth compared to the previous 3 months as new variants of COVID-19 cases raised an alert to consumers to record savings piled up during the lockdown in winter.

The German government is expecting the economy to grow 3.5% this year and 3.6% next year, however, supply bottlenecks and rising COVID-19 cases are leading German companies a blurry view for this to happen.

IHS Markit economist Phil Smith said, “Growth in output has now fallen behind that of new orders to an extent previously unseen in over 25 years of data collection.”

The supply of bottlenecks led to rising backlogs of work resulting in falling stock levels and acute price pressures across Germany’s large manufacturing sector. Among the items most often reported by survey participants as having an increase in price were aluminum, electronics, plastic, steel, and timber.

“Still, many goods producers are hopeful that conditions will have improved come next summer, and a further steep rise in employment levels shows that efforts are still being made to expand capacity and prepare for higher output in the future,” Smith added.

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