German industry fell well short of its potential in 2021, even though production rose again at the end of the year. The supply bottlenecks, which weighed heavily on production throughout the year and even increased in intensity over the course of the year, were decisive. Despite the turnaround at the end of the year, industrial production in 2021 probably fell about 12% short of the level that would have been possible, given the high level of new orders. This corresponds to a loss in value creation of about EUR 70 bn.

This would mean that GDP was likely depressed by up to 2% in 2021 due to the supply bottlenecks. The supply problem is a major reason why economic output in Germany has most recently lagged behind its pre-crisis level, while in many other countries it has already exceeded pre-crisis levels. The macroeconomic impact of the supply bottlenecks is particularly serious in Germany, if only because the share of the manufacturing sector in total value added, at around 20%, is significantly higher than in many other countries. For comparison: in France, the proportion is around 10%. Surveys also indicate that production disruptions among German industrial companies have been greater than in many other countries.

Most recently, industrial production bottomed out and then rose for three months in a row. There are signs of a strong increase in production in January. Surveys indicate that the supply bottlenecks have eased noticeably recently. In the automotive sector in particular, production appears to have been ramped up further. Overall, however, production continues to lag significantly behind incoming orders, so the industry still has a lot of catch-up potential. Provided supply bottlenecks continue to ease and the order situation remains stable, industrial production is expected to rise by more than 10% over the course of the year.

Nils Jannsen heads Business Cycle Germany research at the Kiel Institute for the World Economy (IfW Kiel, Kiel, Germany; www.ifw-kiel.de). Among other things, he analyses, predicts and comments on the development of the German economy in Kiel Institute Statements. Reprinted as a guest editorial with the kind permission of IfW Kiel.