German growth to slow sharply in final months of 2021

FRANKFURT (Reuters) – German economic growth is likely to slow sharply in the fourth quarter of the year as industry continues to suffer from supply shortages and demand for services wanes, the Bundesbank said in a regular monthly report on Monday.

Europe's biggest economy boomed over the summer but unexpected supply-chain bottlenecks are now holding back its vast car manufacturing sector, while higher energy costs and persistent concerns over the coronavirus pandemic could hit consumer sentiment, economists have said.

"Growth is likely to slow significantly in the current quarter," the Bundesbank said, adding that full-year growth is now likely to be "significantly" below its 3.7% prediction made in June.

"The strong momentum in the service sector is likely to subside considerably," the bank said. "The manufacturing sector is likely to continue to suffer from delivery problems."

Underlining the central bank's concerns, the Ifo institute earlier on Monday said that business morale fell for the fourth straight month in October as supply bottlenecks continued to hold back factory output.

The car sector has been especially hard hit by the shortage of semiconductors, an issue economists said could last well into next year, impacting growth for months to come.

The troubles were entirely supply driven, however, as industrial orders remained healthy, leading to an "extremely high" gap between demand and production, the Bundesbank added.

Services are also likely to suffer as some pandemic-related measures will stay in place, especially as coronavirus infection rates continue to climb past levels that were in the past triggers for restrictions.

The Bundesbank added that these supply issues along with higher energy prices and the reversal of a cut in value-added tax will continue to push consumer prices higher, a repeat of its previous warnings.

"Overall, the rate of inflation is likely to continue to rise for the time being, before gradually declining in the coming year," it said.