Supply chains are so strained that inflation in developed countries is on the verge of bursting, and now an energy crisis is looming.
The latest problem was Germany, where production in August fell 4.7% from the previous month. Since February 2020, industrial production is below its level by 9%.
According to Andrew Cunningham of Capital Economics, the sharp drop is due to a huge 17.5% drop in auto and auto parts production. Car production in Germany is 40% below the pre-pandemic level.
The importance of the automotive industry for Europe’s largest economy can hardly be overestimated. The automotive industry employs over 880,000 people, and German factories will produce over 4.6 million vehicles in 2019.
Many automakers are grappling with demand for parts as the pandemic continues to invade global supply chains. There are not enough computer chips.
Germany’s economy is set to grow strongly in the third quarter, in part due to the opening of the hospitality sector, Cunningham said. But the outlook for the fourth quarter is “significantly worsening.”
“With conditions deteriorating since August, Germany’s manufacturing problems threaten to keep overall economic activity well below pre-pandemic levels until next year,” Kenningham said.
Extended supply chains may be the biggest challenge advanced economies face today. But another crisis is looming.
According to Julia Horowitz of CNN Business, the global energy crisis, driven by weather and renewed demand, is exacerbating, triggering anxiety ahead of winter when more energy is needed to light and heat homes.
Governments around the world are trying to limit exposure to consumers, but admit they cannot prevent bills from rising. Some countries may order factories to close to save energy.
The rise in energy prices is fueling inflation, which is already a matter of serious concern to investors. Central banks may be forced to remove stimulus earlier than expected to contain price increases.
OPEC and its allies, who can help alleviate the energy crisis, are being cautious. Earlier this week, they decided to stick to a plan to gradually increase oil production, resisting pressure to open taps wider. Why? Of course, a pandemic.
“We are afraid of the fourth wave of COVID-19, no one wants to take big steps,” an OPEC + source told Reuters.