According to a survey released on Monday, supply constraints held back German manufacturing activity in December, although manufacturers with full order books expressed confidence that these constraints will lessen in 2022.

The IHS Markit Final Purchasing Managers' Index (PMI) for manufacturing, which accounts for roughly one-fifth of the economy, remained constant at 57.4, slightly lower than a flash reading of 57.9.

The outlook for manufacturing in Europe's largest economy has been clouded by semiconductor and raw material shortages, which have harmed the German auto industry in particular.

German manufacturing is in 'free fall,' say factory executives | Markets Insider

Due to the shortages, as well as rising energy prices, manufacturers have been forced to pass on the additional costs to consumers, generating fears about an inflationary spiral that will dampen both consumption and growth.

"The survey's output index has now moved up in each of the previous two months, offering some hope that the final quarter of 2021 can be a turning point from which growth begins to speed up as we move into 2022," said Phil Smith, Economics Associate Director at IHS Markit.

"Backed by full order books, German manufacturers are optimistic about the following year's growth prospects, albeit much still depends on an improvement in the supply situation."

"Supply chains remain under great pressure by historical standards," he noted, "and there is still a possibility of further disruption as a result of pandemic flare-ups."