Supply chain

German industrial production collapses due to supply chain disruption

Staff wear face masks on the Volkswagen assembly line in Wolfsburg, Germany April 27, 2020. Swen Pfoertner / Pool via REUTERS / File Photo

  • Production drops 4.0% m / m, biggest drop since April 2020
  • Production of cars and auto parts down 17.5%
  • Economists see strong recovery if bottlenecks disappear

BERLIN, October 7 (Reuters) – German industrial production suffered its largest drop in August since April last year, due to supply chain disruptions that are holding back growth in Europe’s largest economy and are hitting the auto sector particularly hard, official data showed on Thursday.

The Federal Statistical Office said industrial production fell 4.0% on the month after rising 1.3% in July. A Reuters poll had indicated a drop of 0.4% in August.

“Manufacturers continue to report production constraints due to shortages in the supply of intermediate products,” the bureau said in a statement.

Production of cars and auto parts fell 17.5% on the month.

German automakers have struggled to meet increased post-pandemic demand since the start of the year, due to a lack of microchips and other intermediates.

Automaker BMW (BMWG.DE) said its group shipments were down 12.2% in the third quarter, hit by the microchip crisis.

On Tuesday, Daimler Truck Boss (DAIGn.DE) Martin Daum said he expected the global chip shortage to continue to affect production next year.

“We will certainly deliver less than we could have sold, and this also applies to next year,” he said, adding that it was impossible to say how large the deficits would be.

“It’s a fight for every chip,” he added.

Official data released on Wednesday showed German industrial orders fell more than expected in August on weaker demand from abroad after two months of unusually strong gains due to large contracts.

However, the Munich-based economic institute Ifo separately said its survey of production expectations rose in September.

“The order books are always full, only the bottlenecks of the materials pose problems for the moment and slow down somewhat the production plans”, declared the economist of Ifo, Klaus Wohlrabe.

For Thomas Gitzel, economist at VP Bank, “if the flow of materials picks up again, the conditions are ripe for a strong recovery in industrial activity”.

Carsten Brzeski, at ING, said that so far it seemed that this takeover “would come rather later than sooner”.

Meanwhile, prices for new residential buildings rose 12.6% year-on-year in August, their largest increase since November 1970. German consumer prices rose 4.1% year-on-year last month.

Jens-Oliver Niklasch, economist at LBBW, commented: “Supply shortages, high energy prices and production shutdowns: a toxic brew that already smells slightly of stagflation.

Reporting by Paul Carrel and Klaus Lauer Editing by Riham Alkousaa, Maria Sheahan and Peter Graff

Our Standards: Thomson Reuters Trust Principles.

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