ECB: NFCs ‘Mostly Optimistic’ About 4Q and Beyond; Supply Constraints to Ease

29 October 2021

By David Barwick – FRANKFURT (Econostream) – Euro area non-financial corporates were generally optimistic about their prospects in the current quarter and thereafter, the European Central Bank said on Friday.

In a pre-release from the seventh economic bulletin of the year, the ECB reported on the basis of contacts in the first half of October between ECB staff and representatives of 68 leading non-financial companies operating in the euro area that ‘most contacts were optimistic about the outlook for activity in the fourth quarter of 2021 and beyond.’

Optimism was based on the current strong backlog of orders and the expectation that the lifting of pandemic-related measures would bolster services further, the ECB said, adding however that rising energy prices were ‘creating additional uncertainty regarding production in energy-intensive industries.’

‘Moreover, higher inflation could subdue real disposable income and final consumer demand’, the ECB continued. ‘Supply chain disruption was likely to persist for several months before gradually easing in the course of 2022, while more substantial capacity investments would take effect in 2023.’

According to the ECB, rising employment was mitigated by ‘an increasing lack of available labour and high attrition, resulting in many unfilled positions.’ The scarcity of job applicants ‘acutely affected those firms seeking to hire or rehire on a large scale.’

The ECB reported that labour shortages reflected a variety of ‘factors that could persist to varying degrees’, along with ‘structural drivers related to job preferences and ageing.’

Still, contacts reported strong overall activity growth, according to the ECB, even if supply constraints were for now a growing problem.

In particular, manufacturers were struggling because of input shortages to keep up with strong orders, leading to ‘a sharp drop in automotive production and in demand for related intermediate inputs’, the ECB reported. ‘By contrast, contacts reported growing demand for many non-durable consumer goods and continuing robust demand for household durables, in turn sustaining demand for most intermediate goods.’

The input shortages hindering manufacturers also reflected overburdened container shipping ports, according to the report. Shortages, including of labour, were also holding back construction activity from meeting robust demand for residential and non-residential investment, the ECB said.

‘Developments in retail and transport services reflected the continued strong demand for manufactured goods’, the ECB further said. ‘Contacts elsewhere in the services sector generally reported steady or robust growth in activity’, with leisure travel, hospitality and recreation services having recovered ‘quite strongly’, albeit still ‘markedly below pre-pandemic levels.’