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Supply shortage hits euro zone growth

Reuters
24 Sep 2021 00:00:00 | Update: 24 Sep 2021 01:08:49
Supply shortage hits euro zone growth
Automakers are on track to lose production of 7.7 million vehicles in 2021, according to the new forecast– Reuters photo

Euro zone business growth was much weaker than expected this month as curbs to limit the Delta variant of coronavirus hit demand and already worsened supply-chain constraints pushed input cost rises to an over two-decade high, a survey showed.

Despite daily infection rates slowing significantly over the past month, most remaining restrictions are unlikely to be lifted anytime soon in major economies, including Germany and France, on concerns over how the pandemic might develop in the months ahead. 

IHS Markit’s Flash Composite Purchasing Managers’ Index, a good gauge of overall economic health, fell to a five-month low of 56.1 in September from 59.0 in August.

Although it stayed above the 50 level separating growth from contraction for the seventh consecutive month, it was well below a Reuters poll estimate of 58.5. “September’s PMIs suggest that the pace of recovery slowed further at the end of Q3, in part as the euro zone economy approaches its pre-virus size but also as supply shortages continue to bite,” said Jessica Hinds, Europe economist at Capital Economics.

“Price pressures remain intense and sky-high energy prices suggest that these are unlikely to ease any time soon.” Those supply distortions - one of the primary drivers of prices throughout the globe over past months - are far from resolved and the trend of higher inflation is here to stay. A sub-index tracking input costs throughout the bloc hit its highest in 21 years.

European Central Bank policymakers recently acknowledged the risk price growth may exceed their relatively benign projections, but will trim emergency bond purchases over the coming quarter. 

The Ifo institute on Wednesday cut its 2021 growth forecast for Germany to 2.5%, pointing to supply chain disruptions.

The purchasing managers’ surveys told the same story with Germany and France - the bloc’s two biggest economies - suffering slowdowns as the bottlenecks put a brake on activity. Both manufacturing and services sectors grew at a weaker than expected pace. 

In Britain, outside the currency union, the economy also lost more momentum as businesses grappled again with rising costs.

Optimism about future output fell to an eight-month low. That contrasts with improving consumer sentiment, according to the latest European Commission data.

Could cost automakers $210 billion

Global automakers could lose $210 billion in revenue this year because of supply chain disruptions, nearly double a forecast earlier this year, consulting firm Alixpartners said Thursday.

A shortage of semiconductors is just part of the problem, Alixpartners said in a new forecast. High prices and tight supplies of commodities such as steel and plastic resin are driving up costs and forcing automakers to curtail production.

Automakers are on track to lose production of 7.7 million vehicles in 2021, according to the new forecast. Alixpartners advises automakers on supply chain and other issues.

In May, the firm predicted automakers would lose $110 billion in revenue and fall 3.9 million vehicles short of production plans for the year.

The dour new forecast comes amid warnings from automakers and commercial truck manufacturers that semiconductor shortages and commodity price spikes are not easing as 2021 heads into its final months, as industry executives had hoped they would. read more

Last week, IHS Markit  slashed its global auto industry production outlook for 2021 and 2022. In the US market, vehicle sales have begun to slow because inventories on dealer lots are around 20 days’ supply, less than half the normal levels, said Dan Hearsch.

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