German factories humming, supply shortages constrain growth

German factories humming, supply shortages constrain growth

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© Reuters. FILE PHOTO: The skyline with the financial district is photographed during sunset in Frankfurt, Germany, April 22, 2020, as the spread of the coronavirus disease (COVID-19) continues. REUTERS/Kai Pfaffenbach/File Photo

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BERLIN (Reuters) – Faster growth in new orders and employment boosted Germany’s manufacturing sector in July, when an expansion gained pace after briefly losing momentum in May, a survey showed on Monday.

IHS Markit’s final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, rose to 65.9 in July from 65.1 in June. The July reading was the third highest since the survey began in 1996.

The industrial sector in Europe’s largest economy has been humming along during the pandemic almost undisturbed by COVID-19 restrictions and helped by generous state support measures.

High demand from abroad has led to filled order books, but supply shortages for semiconductors and other intermediate goods have been holding back production.

Trevor Balchin, Economics Director at IHS Markit, said “the latest survey results provided further evidence that output growth is being constrained by supply shortages.”

“Suppliers’ delivery times continued to lengthen substantially in July, though there were signs that supply pressures had peaked as the incidence of delays was the lowest in five months,” he added.

Indices on input and output prices both rose faster, with input price inflation accelerating to a new survey record high.

“Consequently, the rate of output price inflation hit a new peak for the fifth month running,” Balchin said.

The cost pressures are feeding through to consumer prices.

Germany’s annual consumer price inflation accelerated by more than expected to hit a 13-year high in July, leading services sector trade union Verdi to immediately demand “strong wage increases”.

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