German companies to raise prices as Scholz prepares for economic shock

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Timo Wollmershäuser, head of forecasts at the Ifo Institute, warned that “inflation rates will remain above 4% for some time” in a country historically extremely sensitive to rising prices.

German industrial production fell in December, according to the Federal Statistical Office, down 0.3% from November and 4.1% from December 2020.

Parts of the manufacturing sector fared well with production of capital goods up 2.5% on the month and intermediate goods – which are used in other production processes – up 0.6% .

But consumer goods production fell 0.5pc, energy production fell 0.7pc and construction plunged 7.3pc, which Katharina Koenz of Oxford Economics said was largely due to bad weather affecting construction sites.

She noted that industrial production increased in the last quarter of the year as a whole, which could help the economy avoid a recession.

Ms Koenz said: “In 2021, German industry suffered heavily from global supply chain disruptions and became a laggard in Europe. However, as order books fill up, we expect the sector to explode once supply issues ease and companies can start working on the backlog pile.

“We expect most of the bottlenecks to be resolved over the next few quarters, which should provide a strong boost, especially to the struggling automotive sector and its suppliers, leading to an outperformance of industrial activity. .”

Stefan Schilbe, an economist at HSBC, said the share of automakers complaining of supply shortages fell from over 90% to less than 80%, raising hopes the pressure is starting to ease.

He said: “The important automotive sector, which has been particularly hard hit by chip and semiconductor shortages, has already seen activity pick up over the past four months.

“However, the current level is still quite low, especially compared to favorable order books, so there is much more room for improvement over the coming months. Production expectations for the next three months in the automotive sector in January remained close to their all-time high recorded in December 2021.

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