The Bundesbank stated in a monthly report that German economic growth is likely to slow considerably in the fourth quarter as industry continues to face supply constraints and demand for services wanes.
Unexpected supply-chain bottlenecks are now holding up the car manufacturing sector in Europe's largest economy, while increasing energy costs and persistent concerns over the coronavirus pandemic could harm consumer sentiment, according to economists.
"Growth is expected to slow markedly in the current quarter," the Bundesbank said, adding that full-year growth is now likely to be "much" lower than its June forecast of 3.7%.
"The robust momentum in the service sector is anticipated to wane significantly," the bank said, “and delivery challenges are anticipated to persist in the manufacturing sector.”
The Ifo institute reported that company morale dipped for the fourth consecutive month in October as supply bottlenecks continued to stifle factory output, reflecting the central bank's concerns.
The car industry has been particularly hard hit by the semiconductor shortage, which economists predict will extend far into next year, affecting growth for months to come.
The problems were entirely supply-driven, however, as industrial orders remained healthy, resulting in a very high demand and production gap, the Bundesbank added.
Some pandemic-related measures are expected to remain in place, putting a strain on services, especially as coronavirus infection rates continue to rise past levels that previously triggered restrictions.
These supply issues, together with increasing energy prices and the reversal of a value-added tax decrease, will continue to push consumer prices upward, according to the Bundesbank, reiterating past warnings.
"Overall, the rate of inflation is expected to continue to climb for the time being before steadily dropping in the coming year," it stated.