Supply bottlenecks slow growth of German factories to lowest level in six months – PMI

BERLIN (Reuters) – German manufacturers struggled to meet strong demand for industrial goods in August, as shortages of raw materials and components such as semiconductors continued to dampen production and drive up prices, an investigation revealed Wednesday.

The IHS Markit final purchasing managers index (PMI) for the manufacturing sector, which accounts for about a fifth of Europe’s largest economy, fell to 62.6 from 65.9 in July.

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

The German economy rebounded in the second quarter with a 1.6% growth rate from the previous three months as an easing of COVID-19 restrictions prompted consumers to tap into record savings accumulated during the lockdown winter.

The government expects the economy to grow 3.5% this year and 3.6% next year, although supply bottlenecks and increasing cases of COVID-19 is leading businesses to take a darker view.

Companies’ efforts to increase industrial production in light of dynamic demand have often been hampered by supply shortages of basic materials and intermediate products, the survey showed.

“Production growth is now lower than new orders to an extent not seen before in more than 25 years of data collection,” said Phil Smith, IHS Markit economist.

Supply bottlenecks have led to increased backlogs, lower inventory levels and acute price pressures in the large German manufacturing sector. Aluminum, electronics, plastics, steel and wood were among the items most often reported by survey respondents to have increased in price.

Supply issues and the resulting price pressures have also clouded the outlook for the manufacturing sector, with the sub-index on business optimism about future activity falling to its lowest level since last October, according to investigation.

“Nonetheless, many goods producers are hopeful that conditions will improve next summer, and a further sharp increase in employment levels shows that efforts are still being made to increase capacity and prepare for higher production at the future, ”Smith said.

(Report by Michael Nienaber, edited by Catherine Evans)

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