German Factories Saw Bottlenecks in Days Before New Lockdown

A global recovery in manufacturing underpinned German industry before the country entered a new lockdown, but also led to bottlenecks and rapidly rising prices.

Factory activity in Europe’s largest economy continued to grow strongly this month, according to an IHS Markit survey of Purchasing Managers conducted Dec. 4-15. Orders across the goods-producing sector rose sharply, with many firms citing stronger demand from China in particular.

The euro extended its gain after the report, and was up 0.4% to $1.2205 as of 9:37 a.m Frankfurt time.

But the surge in demand also saw companies report growing strains on supply chains as well as raw-material shortages that prompted the biggest price increases since March 2019.

“The situation in the manufacturing sector, where rapid growth is resulting in supply bottlenecks and strong inflationary pressures, is reminiscent of that seen during the rebound from the global financial crisis a decade ago, only this time there’s the added disruption from a global pandemic to contend with,” said Phil Smith, an economist at IHS Markit.

The outlook has been made more uncertainty since the country entered ahard lockdown on Wednesday. All non-essential stores are shuttered until at least Jan. 10 and the government is urging businesses to close early ahead of the upcoming Christmas holidays.

With the services sector already reeling from earlier curbs on public gatherings, the latest disruptions are likely to deepen the latest contraction.

In December, a composite PMI for both sectors rose to 52.5 from 51.7 in November, beating economists’ expectations. The measure for France also exceeded forecasts. A gauge for the 19-nation euro area will be published at 10 a.m. Frankfurt time.

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