Germany's chip industry faces acute shortages from China's export restrictions

Germany’s chip industry is facing shortages, according to data from the Ifo Institute, which shows a shortage of semiconductors and rare earth materials in key technology sectors. The Ifo business climate index report shows a moderate rise in October, as manufacturers struggle. 

According to the Ifo report, 10.4% of companies in Germany’s electronics and optical industries reported raw material shortages in October, an increase from 7%  in July and 3.8% in April.

Across the entire manufacturing sector, approximately 5.5% of companies reported difficulties in sourcing raw materials. The Ifo report also highlighted a persistent shortage, particularly in high-tech and precision industries. 

The Ifo business climate index rose to 88.4 in October from 87.7

Klaus Wohlrabe, head of surveys at the Ifo Institute, stated that the chip shortage has resurfaced in German manufacturing industries. He cited trade restrictions on critical raw materials and rare earth elements as crippling supply conditions.

Wohlrabe highlighted the electronic components and optical devices sectors as the most affected.  

📈Die Stimmung unter den Unternehmen in Deutschland hat sich verbessert. Der #ifoGeschäftsklimaindex stieg im Oktober auf 88,4 Punkte, nach 87,7 im September. Die deutsche Wirtschaft hofft weiter auf eine Belebung der Konjunktur im kommenden Jahr. @KlausWohlrabe @FuestClemens pic.twitter.com/icNbDgiJTy

— ifo Institut (@ifo_Institut) October 27, 2025

The Ifo data suggests that bottlenecks, which had eased considerably earlier this year, are again emerging as a threat to production capacity and export performance. With many electronics firms relying on imports from Asia and constrained by geopolitical tensions, manufacturers struggle to secure steady deliveries of semiconductors, chips, and optical sensors —raw materials essential to Germany’s automotive, machinery, and green-tech sectors.

The Ifo business climate index rose to 88.4 in October, up from 87.7 in September. This increase was boosted by optimistic expectations for a better upcoming month. The report noted that companies’ situation worsened for the third month straight, reflecting a moderate but fragile rebound. 

Carsten Brzeski, Global Head of Macro at  ING, revealed that after months of stagnation, the German economy is still trying to find its footing. He added that material shortages, weak external demand, and an uncertain policy environment are the key factors limiting Germany’s recovery.

According to Brzeski, the renewed challenges may easily cut industrial output growth in Q4, risking another year of stagnation.

Brzeski wrote that German industries no longer dictate the rules of the game. They are currently experiencing global supply frictions. He noted that China is shifting from an export destination to a system rival.

China’s tight export controls add pressure to the German chip shortage

The recent tightening of controls imposed by the Chinese government has exacerbated Germany’s slowing growth. The restrictions have increased the cost and lead time for critical raw materials used in automotive sensors, power electronics, and advanced optical devices. These areas maintain Germany’s global leadership in the manufacturing industry. 

Germany faces bureaucratic hurdles, skilled labor shortages, and slow disbursement, which risk further impacting growth even with the €500 billion fiscal stimulus package announced earlier this year for infrastructure and defense. The government has also delayed implementing the structural reforms necessary to boost its competitiveness, despite Chancellor Friedrich Merz’s promise. Business leaders have urged the government to reduce bureaucracy and improve digitalization. 

According to a recent Cryptopolitan report from earlier this month, the Chinese Ministry of Commerce tightened controls on rare earth exports and processing technologies, thereby preventing unauthorized overseas cooperation. The country accounts for over 90% of the world’s rare earth and magnet products. It produces 17 elements that power electric vehicles, aircraft engines, and military radars. 

Beijing then restricted the export of rare earth materials in response to the U.S. ban on exporting chipmaking equipment to China. Initially, in August, shipments of rare earth magnets from China surged 10.2% from July, and production increased by 15.4% year-over-year. That was due to an agreement between  China, the U.S., and Europe to expedite shipments and ease controls. The latest controls were prompted following a reported inconsistency in rules agreed upon by the U.S., Japan, and the Netherlands.

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