The German construction sector is showing no signs of recovering, even after being in a crisis for months and despite pledges of support and investment from the government. Carsten Brzeski, global head of macro research and chief economist for Germany at ING told CNBC that Recent economic data shows the industry is still in a dismal situation., According to the latest building permit figures published last week Recent economic data shows the industry is still in a dismal situation. The data shows that between January and May of this year, permits for single-family homes fell over 31%, and those for multi-family houses declined over 21% compared to the same time period last year.
Felix Pakleppa head of the Central Association of the German Construction Industry noted the bleak outlook for the sector. Pointing to the data which has not reflected growth he said “Building permits in Germany continue to only know one direction i.e. downwards.” He also added that housebuilding typically takes around two years from when the permit is issued to the final stages so the lack of permits now will continue to have an impact. Germany’s housebuilding and construction industry has been struggling for some time, with sentiment and expectations for the industry hitting all-time lows earlier this year. Wider economic trends such as inflation and elevated interest rates have been weighing hard on the sector.
The underlying causes of the decline in permits have not yet eased and aren’t likely to do so anytime soon, Brzeski said “The underlying causes of the decline in permits have not yet eased and aren’t likely to do so anytime soon.” Interest rates are unlikely to ease significantly and issues such as construction costs and a labor shortage are persisting, he added.
The German Government Role In Construction Sector
The German government made provisions in its 2025 budget to boost investment for the sector and get more houses built. Key points include funding to increase affordable, social housing and financial support for private households building climate neutral homes. ING’s Brzeski said “The government’s approach has shown very little impact adding that the new measures don’t appear much more promising.” He also added the new measures again go into the right direction but are currently still too small in size to be a real gamechanger. To really make a difference in the construction sector, increased government spending and temporary measures to boost the sector such as tax cuts or lower transaction are required.
