Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022
The savings rate accordingly dropped steeply and this trend is likely to continue into 2022, albeit slightly less pronounced. Private consumption should recover steadily throughout this year and the next. The pace of recovery in the first quarter 2022 may at times be slower given the uncertainty regarding increased energy prices and the possible impact of the spread of the Omicron variant. Gross fixed capital formation trended upwards in the first six months of 2021, fuelled above all by full order books resulting from rising demand within Europe and worldwide. The upward momentum was curbed by supply bottlenecks, affecting the automotive industry in particular. The supply shortages will only gradually ease up in the course of this year and 2023. Another downward force is the increasing shortage of skilled labour. These shortages in conjunction with high energy prices and uncertainty surrounding the further course of the pandemic are the main risks facing European industry in 2022. On the positive side, the financing environment continues to be favourable and one-time effects such as the European spending and investment scheme NextGenerationEU will be working in favour of overall economic growth. Construction activity was already two percent over its fourth quarter 2019 level in the second quarter 2021 and posted a solid performance in the first half of the year. As in the case of gross fixed capital formation, growth here was also curbed by delayed supplies and a shortage of skilled labour. This trend is set to persist into 2022 and, combined with increasing demand triggered through the use of savings, for example, will drive construction and property prices up. Exports continued to recover in 2021. Exports in the Euro area increased by 9.3 percent last year (ECB 2021a), buoyed by rising global demand for goods and an increase in activity in services such as tourism. Here too, a shortage in supplies and skilled labour capped growth. On the other hand, the moderate devaluation of the euro, particularly against the Euro area’s key trade partners, had a positive impact on exports. Imports are estimated to have increased by seven percent. The trade balance therefore remained in the positive with a surplus of two percent of GDP estimated for 2021 with a similar performance expected in 2022 (ECB 2021a).
Supply bottlenecks stifling German industry In the last few months, supply bottlenecks have intensified and are having an increasingly negative impact on value added in Germany’s manufacturing sector. At the end of 2021, supply-side shortages affected 70 percent of manufacturing companies. Individual industries that struggled most with shortages in the course of 2021 were the automotive industry (incl. suppliers), mechanical engineering, the metal industry, and large sections of the plastics and chemical industry. A broad mix of causes The bottlenecks are the result of a variety of multifaceted factors that are mutually reinforcing. The single biggest factor is the consequences of the Covid pandemic. On the supply side, measures introduced to combat the pandemic (such as regional lockdowns) temporarily reduced production and transport capacities. This has, at times, thrown global supply chains completely off track. At the same time, demand fluctuated heavily resulting in available capacities quickly becoming either under or overutilised.
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