Germany’s struggling construction industry shows no signs of recovery

Germany’s construction industry shows no signs of recovery, even after months of crisis and despite government pledges of support and investment.

Carsten Brzeski, head of global macro research and chief economist at ING in Germany, told CNBC that recent economic data shows the industry is still in “a bleak situation.”

New building permits fell 24.2% in May from a year ago and are down nearly 40% from May 2022, according to Latest building permit data published last week.

Data shows that from January to May of this year, single-family home building permits fell more than 31% and multi-family home building permits fell more than 21% compared to the same period last year.

Felix Pakleppa, head of the Central Association of the German Construction Industry, noted the gloomy outlook for the industry.

“Building permits in Germany are still pointing in one direction: down,” he said, pointing out that the data has not reflected growth since April 2022.

He said that it usually takes about two years from the time a permit is issued to the final stage of construction, so the current lack of permits will continue to have an impact.

“You don’t need a degree in statistics to realize that Germany is sliding into a serious housing construction crisis,” Pakleppa said in a post. declare was released last week and translated by CNBC.

The German construction and home building industry has been struggling for some time, with sentiment and expectations for the sector hit an all-time low earlier this year.. Broader economic trends such as rising inflation and interest rates have been weigh on the industry.

The underlying causes of the permit decline have not improved and are unlikely to improve anytime soon, Brzeski said. He added that interest rates are unlikely to drop significantly and issues such as construction costs and labor shortages persist.

Klaus Wohlrabe, director of surveys at the Ifo Institute for Economic Research, agreed that the shortage of orders was expected to continue for some time. He said the high cost of building homes for private households remained a “fundamental problem.”

The German government has implemented commitment in the 2025 budget to promote investment in this sector and build more housing. Main attractions including funding to increase affordable social housing and financial support for private households to build climate-neutral housing.

But so far, the government’s approach has shown “very little impact,” said ING’s Brzeski, adding that the new measures do not look much more promising.

“The new measures are again a step in the right direction but are still too small to really make a big difference,” he said.

Brzeski said increased government spending and temporary measures to boost the sector, such as tax cuts or lower transaction costs, could really make a difference.

Current government commitments are just that: commitments, Wohlrabe argues, because there is still uncertainty about how they will be implemented. This leaves companies with little basis for future planning, especially when the measures tied to the budget may only apply for a year rather than the long term, he explains.

“Overall, corporate sentiment is very bad. It may be improving a little bit, but it’s still very deep,” Wohlrabe said.