Consequences of semi- conductor shortage for the euro area

Th e manufacturing sector in the Euro area was just coming out of a first, long stretch of difficulties, when the outlook for a strong recovery was nipped in the bud by a new shock: semi-conductor supply bottleneck. At the onset of the pandemic, demand for semi-conductors in the car sector dropped, shifting supplier towards producers of information and computer equipment, where demand firmed as an increasing number of employees started to work from home. Then trade disruptions, adverse weather shocks in Asia, and steady production capacities made the rising demand for semiconductors unfulfillable. The lack of semiconductors forced closures of factories and increased delivery times, in particular in the car sector. W e f ind that supply bottleneck s suppressed output by €112.9 bn in the euro area, between Q1 2020 and Q2 2021, i.e. € 19 bn per semester or 4% of the manufacturing value added. Investment plans to strengthen the global semiconductors supply chain have been announced since. But even with new factories springing up in the medium term, we except the shortage to drag down manufacturing production, and mostly car production until 2022 .