Supply Shortages at Export Companies Slow Down Growth

In a blog for JITpay™, Dirk Mewis highlights the situation in the German export market. The global economic recovery continues to boost German exports, but the recovery of German exports is being slowed down. The problem: there are supply shortages at export companies. Nevertheless, the BDI expects a significant increase for 2021.

By Dirk Mewis

Primarily due to strong demand from China, the USA, and the EU, Germany’s exporters have benefited for the twelfth consecutive month from the global economic recovery following the Corona crisis. In April, German companies exported goods worth 111.8 billion euros abroad, which is 47.7 percent more than in the weak previous year’s month. Business with EU countries increased by 58.6 percent. Exports to the USA, the most important export customer, grew by 58.6 percent, to the UK by 64.1 percent, and to China by 16 percent.

However, compared to the previous month, exports fell short of expectations. Compared to March 2021, exports in April only increased by 0.3 percent, while economists had expected a 0.5 percent rise. At the same time, imports unexpectedly fell by 1.7 percent. Thus, exports were 0.5 percent below and imports 5.5 percent above the pre-crisis level of February 2020. The Federal Association of German Industry (BDI) recently projected an increase in goods exports of 8.5 percent in real terms.

However, currently, the “recovery of German foreign trade” is still awaited, notes BDI Managing Director Joachim Lang. Lang attributes this mainly to supply shortages that have recently slowed down industrial development. After the mood in export companies had risen sharply in April, it received a slight setback in May due to raw material shortages. The export expectations of the industry, surveyed by the Ifo Institute, fell to 23.0 points after 23.9 points in April.

Shortages of Intermediate Goods

The order books are full, but production is shrinking: Due to shortages of semiconductors, construction timber, and other intermediate goods, industry, construction, and energy suppliers produced one percent less in April than in March, according to calculations by the Federal Ministry of Economics. Industrial production alone shrank by 0.7 percent. The ministry referred to “a slight dampening caused by a shortage of intermediate goods (especially semiconductors and construction timber).”

The industry is still affected by indirect pandemic pressure, commented Alexander Krüger, chief economist at Bankhaus Lampe, on the development. “Longer delivery times and material shortages are actually signs of a boom, which does not currently exist.” In construction, there was a decline of 4.3 percent in April. In contrast, energy production noticeably increased by 6.0 percent compared to the previous month.

However, the disappointing figures also affect the outlook. The production expectations of the German industry have “slightly worsened at a high level,” reported the Munich Ifo Institute based on its monthly survey among companies. The situation in individual sectors is very differentiated, said Ifo expert Klaus Wohlrabe. “The automotive industry and its suppliers are significantly lowering their expectations but still anticipate production increases.” Clothing manufacturers, on the other hand, report for the first time in nine months that they want to expand their production. A continued significant increase in production is also expected in the beverage manufacturing sector, in the production of data processing devices, and in mechanical engineering.

Strongest Growth in 45 Years?

The export-dependent industry can benefit from the recovery of global trade after the Corona slump. After the historic decline in 2020, the world economy is expected to grow this year as strongly as it has not since 1976, predicts the International Monetary Fund (IMF). The two most important buyers of goods ‘Made in Germany’ are expected to be the driving forces: the USA and China.

For this reason, the BDI also expects a significant increase for the current year. With decreasing supply shortages, industrial production and exports are likely to rise again significantly.

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