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Supply chain frictions prevent the economy from growing further

The latest growth experience brings back memories of 2018 and 2019, when a series of so-called one-off factors brought a fundamentally strong economy to its knees. This time around, it was supply chain frictions that undermined the growth performance of the German economy. While private consumption and services still benefited from the full post-containment rebound, industrial production experienced another weak quarter.

Looking ahead, supply chain frictions, rising energy prices and the resulting surge in inflation do not bode well for the near-term outlook. In fact, the German economy could come to a halt in the last quarter of the year, assuming that higher inflation and supply chain friction not only distort industrial production, but also begin to dent consumption. private. As a result, the German economy is unlikely to return to its pre-crisis level until early next year; later than many other eurozone economies. The big tax boost almost everyone talked about last year, which should have pulled Germany out of the pandemic faster than most other countries, has fallen victim to global supply chain friction.

Beyond the short term, however, strong fundamentals bode well for a strong rebound in the German economy in 2022, once global supply chain frictions are gradually resolved. Think of the industry’s full order books, the strength of the job market, and excess savings. Therefore, after a weak year 2021 with 2.5% GDP growth, we expect the German economy to accelerate to around 4.5% growth in 2022.

Overall, the German economy is still around 1% below its pre-crisis level and with continued friction in the supply chain and higher energy prices, it appears that the The economy will not return to its pre-crisis level until early 2022. Even the strongest fiscal stimulus cannot protect an open economy from disruptions in the global supply chain.


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