Germany: risk of industrial recession due to shortage of (raw) materials

Germany is on the brink of an industrial recession. The rest of Europe is also facing severe weather. One in three companies may experience a drop in turnover due to rising production costs and scarcity of raw materials and semi-finished products. This is shown by research by Euler Hermes, the largest credit insurer in the world.

Sectors that are experiencing difficulties are the automotive industry, mechanical engineering and chemicals. Germany is particularly hard hit by this. According to Johan Geeroms, Risk Director at Euler Hermes Netherlands, this is an atypical recession. “Normally in a recession you see stocks rise because demand falls. Unemployment also generally rises. The opposite is now the case. Companies cannot meet the demand. Look at the auto industry. The waiting lists for new cars continue to grow. Car prices are also rising. You don’t see that in a normal recession.”

The Netherlands also feels the blows in Germany
Geeroms says about the Netherlands: “The economy is recovering fantastically after the lock downs. There is plenty of room for further growth. However, in certain sectors, the brakes are also applied here because the supply of basic materials is insufficient. The harder the blow hits Germany, the more we will feel it here too.”

Geeroms cites various reasons why industrial production companies cannot meet the demand. “Due to the lock downs, a lot of demand for products has been postponed. Production lines have also been put on the back burner. The reopening of the global economy has unleashed an avalanche of delayed demand, as it were. After production lines have first been scaled down, extra production capacity is needed to meet the demand. Companies are doing everything they can to deliver more products, but in the process they run into a supply chain that is deeply disrupted. Major transit ports in China are still closed if the corona infections increase. There is a tremendous amount of delay in the arrival and departure.”

Profit under pressure
“Everywhere you see that profitability is coming under pressure. Turnovers declining due to the shortage of basic materials and also due to rising costs. A good example is of course the oil and gas price that is soaring. Not all companies are able to pass on these higher costs to the customer. That is directly at the expense of profit.”

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Source: Euler Hermes

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