Supply chain issues hold back growth in Europe’s technology industries after months of solid increase

22 November 2021

Twice a year, Orgalim’s economists co...

Twice a year, Orgalim’s economists compile and analyse the latest economic trends for Europe’s technology industries.

In spring 2021 Orgalim economists were still relatively cautious regarding the growth forecasted for 2021 – a weak first quarter was followed by the first signs of a surge in demand in the technology industries. 

They anticipated an upswing but underestimated the extent of it. The +5.8% growth originally forecasted six months ago has now been followed by a significant upward correction: from the current perspective, our economists are assuming a turnover growth of +9.7% for the full 2021 year.

What were the reasons for the extremely dynamic development in demand in the 2nd and 3rd quarters of 2021? A number of factors have come together which, in combination, have led to a market situation that is almost overheating. As a result of the progress of the vaccination campaign, investment plans by companies were reactivated and final consumer demand was strengthened. Investments that had been postponed during the crisis have also additionally increased demand. Industries also created additional growth impulses through inventory build-up and thus anticipated future demand.

However, in the 4th quarter, the forecasts are once again more cautious and, in some cases, even pessimistic. Huge disruptions in supply chains have led to production difficulties across the industry. This is gradually having an impact on demand, where we see signs of a clear slowdown in growth, and in some industries – like automotive supply – even of crisis situations..

The decoupling of production growth on the one hand and profit margins on the other is also striking. The profits of the companies cannot keep pace with the increases in production, because of the enormous increase in costs for primary materials – which may only partially be passed on to the customer.

The impact on the supply side with shortages of pre-materials, rising energy prices and pressure on the labour market presents us with a completely unexpected situation. Instead of limited demand, there are currently bottlenecks in our supply chains. This is a situation that has not existed to such an extent for decades. We are currently assuming that further growth will continue to slow down in 2022, with an expected growth rate in the technology industries of +3.9 %.

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