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German industry braces for tougher 2022 due to war, lockdowns

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FILE PHOTO: A man poses in a wheel of a Caterpillar excavator at the 'Bauma' Trade Fair in Munich

BERLIN (Reuters) - German industry is bracing for a tougher 2022 as lockdowns in China and the war in Ukraine compound ongoing supply chain problems, leading two associations to downgrade their forecasts for the year.

The VDMA engineering association cut its machinery production growth outlook for a second time on Monday. It now expects production of industrial machinery carrying the "Made in Germany" label to grow 1% this year, having already slashed its forecast to 4% from 7% two months ago.

Last year, production grew by 6.4%.

The BDI industry association said it now expects exports to grow by only 2.5% this year, after predicting a rise of 4% in January.

The lowered forecasts come despite many companies having strong backlogs of orders, as they are struggling to fill them: A survey by the Ifo institute said 77.2% of companies complained about bottlenecks and problems procuring intermediate products and raw materials.

One in two companies affected by material shortages said the China lockdowns made the situation even worse than before, the IFO survey published on Monday showed.

VDMA President Karl Haeusgen said in a statement that before Russia's invasion of Ukraine, 80% of companies described their business prospects in Russia as good or satisfactory. Now, 75% expect it to deteriorate in the next six months or want to abandon it altogether.

"This shows the extent to which the war has changed everything," Haeusgen said.

BDI predicts production will grow by nearly 2% - less than expected before the war began - with the caveat that this forecast depends on supply chain problems easing and Russian gas continuing to flow in.

Exports may also be a concern. Last year, machinery made up a substantial part of the 26.6 billion euros ($28.5 billion) in goods that Germany exported to Russia.

($1 = 0.9322 euros)

(Reporting by Matthias Inverardi and Christina Amann; Writing by Zuzanna Szymanska and Miranda Murray; Editing by Raissa Kasolowsky and Hugh Lawson)

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