ifo Dresden: Material Shortages in German Manufacturing Could Last Longer

The ifo Institute has warned that material shortages in German manufacturing could persist over a longer period of time. “To some extent, this reflects lasting developments that are the result of global changes in the structure of production – such as the increasing demand for semiconductors or industrial raw materials,” writes ifo researcher Joachim Ragnitz in Dresden. “Only part of the shortages are due to a chain of crises that will hopefully ease in the coming months; for example, the consequences of the coronavirus pandemic or the Ukraine war.”

According to Ragnitz, population decline could lead to permanent production cuts in Germany in the future. There is also a risk that China will trigger shortages or price increases for certain commodities. In addition, decarbonization could make manufacturing in Germany too expensive.

To avoid negative consequences for Germany as an industrial base, Ragnitz says companies would have to find new suppliers or try to procure substitutes for particularly scarce intermediate goods. The increase in the cost of these goods associated with the shortage of inputs provides the necessary incentive for this and so it should not be prevented.