Confidence in German economy slumps amid supply chain crisis

Factory

Confidence among German investors has plunged to its lowest level since the pandemic struck as soaring inflation and severe supply bottlenecks create a gloomy outlook for Europe’s biggest economy.

The ZEW Institute’s closely-watched future expectations gauge declined for a fifth consecutive month to hit 22.3, down from 26.5 in September, marking the lowest reading since last spring.

ZEW president Achim Wambach said the economic outlook for the German economy has “dimmed noticeably”, adding the fall was “primarily down to continuing bottlenecks in the supply of raw materials and components”.

Investors’ perception of current conditions also dwindled further, falling from 31.9 to 21.6 to hit their lowest level since July.

Germany’s manufacturing-heavy economy is being battered by severe disruption across global supply chains, including a shortage of semiconductor chips, a key component in cars, that is pinching automotive companies.

Factory orders and industrial production both tumbled according to the latest official figures, which covered August, with pressure likely to have intensified in the period since amid a continent-wide energy crisis.

The country’s exports also declined during August amid supply chain issues, the first fall in 15 months.

Mr Wambach said: “Financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals and pharmaceuticals."

Inflation in Europe’s biggest economy has reached its highest level in three decades, and is beginning to drag on consumer confidence. Three-quarters of retailers are experiencing difficulty getting goods according to a separate survey by the Ifo research institute on Tuesday.

Profit expectations dropped the most sharply among manufacturers, particularly car makers, while services companies were more optimistic.

Salomon Fiedler, an economist at Berenberg, said the findings indicated that current weakness was the result of “missing key inputs, including raw materials and intermediate goods”.

He said: “It may take well into next year before most of the supply chain problems are resolved."