Global Economy Falters Due to Inflation and Supply-Chain Woes

“The best of the reopening rebound probably came earlier this year,” said David Oxley, an economist at Capital Economics in London.

Data Wednesday showed the U.K.—one of the few major economies to publish monthly gross domestic product figures—eked out modest growth in August after revised figures showed it shrank in July. British GDP expanded 0.4% in August.

The services sector was the main engine of growth in August as Britons returned to restaurants, bars, hotels and theaters following the end of almost all Covid-19 restrictions in England in mid-July.

The manufacturing sector added little to the expansion, as factories grappled with supply-chain challenges such as shortages of raw materials and high energy prices.

Rowan Crozier, chief executive of Birmingham, England-based C. Brandauer & Co. Ltd.—a precision engineering firm that makes metal connectors used in everything from electric kettles to medical devices and miniature military drones—said he has a bulging order book but can’t get metals and other raw materials delivered fast enough to meet demand.

Normally it takes six to 12 weeks to fulfill an order, he said, but right now he is telling his customers they may have to wait between 30 weeks and more than a year. He said his suppliers are slowly ramping up capacity but anticipates the squeeze on raw materials won’t abate until the spring.

“It is getting better but we are not out of the woods yet,” Mr. Crozier said.

A shortage of truck drivers in the U.K. has led to bottlenecks at the port of Felixstowe in England, the country’s busiest container port. The port has limited space for giant freighters, so A.P. Moeller-Maersk A/S recently began unloading U.K.-bound containers at other ports in the U.K. and Europe and shipping them back on smaller vessels to limit delays, a Maersk spokeswoman said.

As shipping times lengthened over the summer, Will Bown paid a premium for a container to be sent from China by rail, only for it to get stuck at the U.K.’s Hull port for three weeks. His family business, SuperFOIL, imports construction materials such as insulation to the U.K. from Turkey, India and China.

“We have more or less kept up with demand but we are constantly teetering on going out of stock,” he said.

The International Monetary Fund trimmed its 2021 growth forecast for the global economy this week, to 5.9% from 6% previously, saying the outlook has deteriorated as snaking global supply chains struggle to fulfill galloping consumer demand in rich countries.

In Japan, data Wednesday showed machinery orders fell 2.4% in August, defying expectations for a rise. Recent data from Sweden and Germany also show the squeeze on manufacturers.

Sweden’s economy contracted by 3.8% on the month in August, taking it back below its pre-pandemic size, as exports slumped due to freight issues and shortages that dragged manufacturing output down by 4.5%.

Volvo AB suspended production in August, the latest auto maker to suffer the effect of a global shortage of semiconductors. The chip squeeze intensified in the third quarter as Covid-19 cases surged in southeast Asia, where most chips are made, tested and packaged.

Revenue at Sweden’s NordiQ Group reached a record €30 million this year, even while production at some of the car manufacturers it supplies with sheet metal, including Volvo, was disrupted by shortages of some components. Without those constraints, turnover might have been 10-15% higher, said Chief Executive Stefan Ottosson.

Order books for next year are already full, suggesting demand will remain strong, though the surging price of steel is causing him concern. “You have very strong volumes, record high turnover, but at the same time many dark clouds on the horizon,” Mr. Ottosson said. “It is a bit of a roller coaster.”

Germany’s economy, Europe’s largest, is slowing sharply as its export-focused businesses wrestle with global supply-chain bottlenecks, rising energy prices and a slowdown in China, the nation’s biggest trading partner.

German industrial production slumped by 4% in August compared with the previous month, the federal statistics agency said this month. The weakness, it said, was driven by a slide in production of vehicles and vehicle parts. Auto sales in China, the largest market for German car manufacturers, declined by almost 20% year-over-year in September amid shortages of semiconductors and power, according to data published Tuesday.

German auto maker Opel Automobile GmbH said in late September it would halt operations at its Eisenach plant in central Germany through at least the end of the year and put staff on furlough. It blamed the global shortage of semiconductors.

Production at the plant, whose 1,300 workers construct the Grandland sport-utility vehicle, will restart at the beginning of 2022 provided the supply-chain situation allows, a spokesman for the car maker said.

Nearly half of Germany’s roughly 3.8 million small and midsize companies are currently struggling with supply-chain issues, according to a September survey by German state-owned investment bank KfW. The shortages don’t just affect microprocessors but also steel, aluminum, copper and other metals, plastics and packaging materials, and timber for construction and the furniture industry, the bank said.

In the U.S., growth is expected to slow to 1.4% in the third quarter compared with an average of 6.5% in the first half of 2021, according to IHS Markit, which revised the figure down because of a sharp drop in consumer spending.

Consumer-price inflation in the U.S. rose 0.4% on the month in September and was 5.4% higher than a year earlier, data Wednesday showed, as shortages of goods and labor drove up prices for groceries, new vehicles and furniture. Rising energy prices world-wide pushed up the price of gasoline and heating fuels. The IMF said this week that accelerating inflation represents a risk to the global recovery and urged central banks to be alert to the risk that price pressures prove more persistent than they currently expect.

China’s economy is also expected to decelerate rapidly in the third quarter, as the country was battered by unexpected shocks such as sporadic outbreaks of Covid-19, widespread power shortfalls as well as a cooling property market. China’s economy is expected to grow 5.1% during the third quarter from a year ago, according to a poll by The Wall Street Journal among 17 economists, after posting growth of 7.9% in the second quarter.

—Stella Yifan Xie, Yoko Kubota and Gwynn Guilford contributed to this article.

Write to Jason Douglas at [email protected], Isabel Coles at [email protected] and Tom Fairless at [email protected]