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Germany’s economy is set to grow strongly in the third quarter despite the pace of recovery losing momentum partly due to the pandemic-induced supply chain constraints, Capital Economics said.

Results of the latest ifo survey showed on Wednesday that the German business confidence eased for a second straight month. The index dropped more than expected to 99.4 in August from 100.7 in July.

“This provides further evidence that Germany’s recovery is losing some momentum, partly due to supply chain difficulties in the manufacturing sector and the Delta variant,” Andrew Kenningham, chief Europe economist at Capital Economics, said.

The slump in the expectations measure outweighed the improvement in the current situation index for a second month in a row. Activity weakened in all sectors.

Kenningham expects supply chain problems to drag on into next year, and said the Delta variant is unlikely to be brought fully under control for some time.

However, survey indicators such as ifo and purchasing managers’ indexes are at higher levels.

“All told, we expect GDP to increase by around 3 percent q/q in Q3, given the suppressed level of activity in April and May,’ the economist said.

Capital Economics now see Germany’s annual GDP growth to be closer to 3 percent rather than the 4 percent predicted earlier.


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