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Industrial production recovers in Germany and the world: Budesbank

Industrial production is recovering in Germany and the world, according to a report by the Central Bank of Germany (Budesbank).

Above all, the industrial sector was one of the main reasons why the world economy remained on a path of expansion in the last quarter of 2020 and the first quarter of 2021, despite new waves of infections.

Overall, industrial production benefited considerably from the changes in demand induced by the pandemic.

Since its drastic fall in the spring of last year, global industrial production had grown substantially, surpassing its pre-crisis level in December 2020.

However, the rebound in manufacturing was running into bottlenecks on the supply side.

On the one hand, purchasing managers around the world complained about increased lead times.

Furthermore, strong demand for industrial goods caused raw material prices to rise sharply and transportation costs rose sharply.

Industrial production

More recently, this cost increase affected industrial producer prices perceptibly and will likely have an impact on consumer prices as well.

Aggregate production in Germany fell sharply in the first quarter of 2021.

According to the preliminary estimate of the German Federal Statistical Office, real GDP was 1.7% less than in the quarter after seasonal and calendar adjustment.

This meant that German economic activity was again below the pre-crisis level of the fourth quarter of 2019 by almost 5 percent.

The setback can be attributed in large part to the stricter and prolonged measures to protect against the coronavirus compared to the previous quarter.

Building

In particular, this hit several service sectors hard.

Furthermore, industrial production stagnated and construction production even declined, after both sectors had provided considerable support to the economy in the previous quarter.

Several factors were involved here. In the construction sector, the return of VAT rates to their highest levels at the beginning of the year and the unfavorable weather conditions in January and February had a moderating effect.

In industry, bottlenecks in the supply of intermediate goods caused the recovery to stagnate, despite a further increase in demand.

The automotive sector experienced production delays due to a lack of semiconductors.

German economy and industrial production

Always according to the Busdesbank, German economic output is likely to grow again significantly in the second quarter of 2021.

The extent of this growth will largely depend on the weight of the containment measures on the economy compared to the first quarter.

As protection measures against the coronavirus are successively relaxed, activity in the affected service sectors should recover considerably.

The industrial sector is benefiting from strong demand, and industrial orders have recently seen a sharp rise from their already high levels.

Manufacturing companies have recently assessed that the business situation has improved again and they have once again raised their production and export expectations.

However, industrial production is likely to remain subdued in the near future due to bottlenecks in the supply of intermediate goods.

Production in the construction sector is also likely to rebound once the unique mitigating effects are no longer applied.

Business expectations improved on a broad cross-sector basis.

The rapid progress of the vaccination campaign opens the prospect of a considerable relaxation of containment measures in the coming months.

GDP could grow strongly in the third quarter and exceed its pre-crisis level already in the fourth quarter.

 

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