Industrial production: recovery constrained by supply bottlenecks

quarter, domestic orders expanded 5.8 percent compared to the previous quarter. Orders from abroad rose much less, going up 1.6 percent. Demand from within the euro area picked up 4.3 percent, while orders from third countries dipped by a minimal 0.1 percent. Compared to pre-crisis levels, demand from within Germany and from third countries was up by more than 13 percent in both cases. Demand from the euro area was only 1.3 percent higher than before the crisis.

Among the main groups of industrial goods, incoming orders for intermediates were up by a slight 0.3 percent in the second quarter 2021 compared to the previous quarter. While orders from at home increased marginally, orders from abroad stagnated. Despite momentum tailing off slightly, orders were nonetheless up by a clear 15 percent on pre-crisis levels (fourth quarter 2019).

Capital goods producers received 5.2 percent more orders in the second than in the first quarter 2021, fuelled primarily by a major increase in domestic orders of 10.6 percent. Foreign demand for capital goods only increased by 2.2 percent in the same period. Compared to pre-crisis levels, orders were up 11.2 percent.

Orders for consumer goods increased by 3.8 percent quarter on quarter in the second quarter 2021. Domestic orders, going up 5.7 percent, comfortably outperformed orders from abroad which rose 2.6 percent. New orders for consumer goods in the second quarter were not only 6.1 percent higher than pre-crisis levels but also set a new all-time record.

On account of supply shortages for specific intermediates, manufacturers are not presently able to work through the high volume of orders and their order books are swelling. According to figures from the ifo Institute, the reach of orders in hand in manufacturing climbed to a new record high of 3.7 production months at the beginning of the third quarter 2021. Among the main industrial groups, orders in hand among consumer goods producers rose by a clear 0.7 months to reach 2.7 production months. Among the producers of intermediates, the backlog of orders dropped off slightly to three months. Producers of capital goods needed 4.2 months to complete their orders in hand.

According to figures from the German Federal Statistical Office, the backlog of orders in manufacturing in June 2021 was up by 2.8 percent on the previous month. With this increase, orders in hand reached their highest level since this data series began in January 2015. Domestic orders in hand increased by four percent while orders in hand from abroad rose 2.2 percent.

Industrial production: recovery constrained by supply bottlenecks

In July 2021, industrial production (manufacturing excluding energy and construction) increased by 1.3 percent compared to the previous month and following seasonal and calendar adjustment. Figures for June were revised upwards slightly to one percent down on May (previously: minus 1.3 percent). Compared to the same month last year, production increased 6.4 percent. Compared to February 2020, the last month before restrictions were imposed to stop the spread of the pandemic, production was 6.3 percent lower following seasonal and calendar adjustment. Energy production dropped for the third consecutive month in July, this time by 3.2 percent. Activity in the construction sector, on the other hand, expanded by 1.1 percent compared to the previous month. In manufacturing overall, production increased by one percent in July 2021.

Production development in the manufacturing industry

year on year change in percent 2019 2020 2021 year Q4 Q1 Q2 original value calendar adjusted

compared to previous period in percent 2020 2021 Q4 Q1 Q2 May Jun Jul seasonally and calendar adjusted

Production - 3.3 - 7.3 - 1.7 - 1.7 15.8 6.0 - 0.7 - 0.4 - 0.8 - 1.0 1.0

Industry - 4.2 - 9.6 - 3.0 - 1.2 19.6 6.4 0.0 - 1.2 - 0.7 - 0.7 1.3

Intermediate goods - 3.6 - 6.1 1.1 2.3 21.9 7.8 2.1 0.6 0.7 - 0.9 - 0.5

Capital goods - 4.5 -14.6 - 6.0 - 3.3 22.1 7.7 - 1.9 - 4.6 - 3.5 - 2.9 3.2

Consumer goods - 4.7 - 3.7 - 3.4 - 3.3 8.8 0.5 0.2 2.4 3.1 3.4 0.9

Energy - 7.2 - 7.2 - 2.7 - 2.3 11.8 3.0 - 1.9 2.3 - 2.9 - 1.8 - 3.2

Construction industry 3.3 3.3 5.0 - 4.6 1.9 5.3 - 4.2 2.6 - 0.8 - 1.9 1.1

Construction industry proper 5.9 5.9 2.9 - 3.0 2.6 0.4 - 0.3 3.0 - 1.2 - 0.2 - 0.5

Finishing industry 1.0 0.0 6.6 - 6.2 1.2 10.1 - 7.7 2.3 - 0.4 - 3.6 2.8

Sources: Federal Statistical Office, own calculations

Despite the upward revision of the June figures, industrial production in the second quarter 2021 dropped 1.2 percent compared to the previous quarter following seasonal and calendar adjustment. Year on year, output was up by 19.6 percent on account of the low output levels last year. Energy production increased by 2.3 percent compared to the previous quarter following seasonal and calendar adjustment. Year on year, energy production increased 11.8 percent. With little activity during the first quarter due to poor weather, construction grew by 2.6 percent in the second quarter. Compared to same period last year, construction activity was up by 1.9 percent.

Among the main industrial groups, production in the second quarter 2021 played out as follows: producers of intermediates increased their output for the fourth consecutive quarter, this time by 0.6 percent compared to the previous quarter. Compared to the second quarter 2020, production was up 21.9 percent. The production of capital goods decreased by 4.3 percent compared to the previous quarter, following a drop of 1.9 percent at the start of the year. Year on year, production was up 22.4 percent, the first growth seen here in three years. Production among consumer goods producers was 2.3 percent higher than in the previous quarter and 8.7 percent higher than in the same quarter last year.

Industrial activity is not yet running smoothly. The reason for this is definitely supply shortages as orders are still coming in nicely. Trends within the industrial sector are mixed. The latest figures for the chemical and pharmaceuticals industry and the electrical and electronics industry show output continuing upwards. On the other hand, particularly vehicle production is faltering with output sliding down by more than ten percent in the second quarter 2021 compared to the previous quarter. This will undoubtedly have a negative knock-on effect for metalworking companies. Output in machinery manufacturing also dropped slightly. The constraints in vehicle production are likely to take some