As the global supply curve shifts to the left, we can say that production trends will suffer as much as inflationary effects. In this respect, the risk of seeing a double-sided effect on inflation and growth seems to be active in terms of the economy, slowdown in growth and increase in inflation; that is, conceptually stagflation. Among these effects, there may be some erosion of the factors that provide the conditions for economic recovery. In terms of risk factors, there is a slightly more focus shift from epidemic risk to the supply/demand imbalance created by global supply shortages.

 

We see symptoms from some of the usual suspects in the data released today by Germany, the economic powerhouse of the eurozone. According to the seasonally and calendar adjusted figures in August, industrial production fell sharply by 4% compared to the previous month. On an annual basis, German industrial production increased by only 1.7% in August. The periodical sharp decline indicates that the recovery in the manufacturing sector has lost momentum. Changes in industrial production are widely followed as an important indicator of strength in the manufacturing sector.

 

In production, deficits may deepen compared to the pre-Covid period. Compared to February 2020, the month before the restrictions were applied due to the corona pandemic in Germany, production in August 2021 was 9% lower in seasonal and calendar adjusted terms. If we look at the sub-items; In August 2021, production in the energy and non-construction industries decreased by 4.7%. Producers continue to report that production has been curtailed due to the shortage of intermediates. Capital goods production in industry decreased by 7.8%. The production of motor land vehicles decreased by 17.5% in August, and the production of machinery and equipment decreased by 6.3% compared to the previous month. The production of consumer goods decreased by 2.6% and the production of intermediate goods decreased by 2.4%.

 

We may encounter a loss of momentum in the production and employment trends of sectors that have difficulties in the supply of intermediate goods. The problems of the sub-elements, which form the main branches of the manufacturing industry, in the supply of input and energy, and the effects of increasing production costs due to insufficient supply, may also gain a layer with the effect of the updated energy supply crisis in the following months. Combined with the recent leap in inflation, the concept of stagflation will be more interpretable by coming out of the pages of the glossary of economic terms. This concept is still controversial as the conditions have not passed the maturation stage, but it is true that the economic recovery is not happening at the old speed.

Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı