Germany’s housing construction sector has experienced a deteriorating situation in recent months, with economic indicators raising concerns and industry leaders expressing unease. Dominik von Achten, Chairman of Heidelberg Materials, a German building materials company, described the sector as being in a “confidence crisis,” attributing it to various unfavorable developments. The company reported a significant decrease in volumes in Germany.
Data from the Ifo Institute for Economic Research in January indicated record lows in both current sentiment and expectations for the German residential construction sector. The business climate reading plummeted to a negative 59 points, while expectations fell to negative 68.9 points. The construction Purchasing Managers’ Index (PMI) survey by the Hamburg Commercial Bank also hit an all-time low at 36.3 in January, signifying contraction, especially in housing activity.
The challenges in the housing construction sector have had a broader impact on Germany’s overall economy. Economy and Climate Minister Robert Habeck announced a downward revision of the 2024 gross domestic product growth expectations from 1.3% to 0.2%, citing higher interest rates as a significant obstacle leading to reduced investments, particularly in construction.
While there are slight improvements in the number of companies reporting order cancellations, a lack of orders remains a concern for over 52% of companies. Klaus Wohlrabe from Ifo Institute cautioned that it’s premature to talk about a trend reversal in residential construction, as challenging conditions persist due to high interest rates and construction costs.
Despite the challenges, there is some optimism regarding a potential turnaround. Dominik von Achten suggested that positive news on the interest rate front, such as a decrease by the European Central Bank (ECB), could bring relief. He expressed hope that if inflation decreases and the ECB acts sooner than expected on interest rates, confidence may return to the sector.
However, the timeline for interest rate cuts remains uncertain. The European Central Bank, in its recent January meeting, considered discussions on rate cuts as “premature,” although progress was noted in inflation. Market expectations anticipate the first decrease to occur in June, according to LSEG data.
