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Germany’s housebuilding sector is facing significant challenges, with industry leaders expressing unease amid worsening economic conditions.
Dominik von Achten, chairman of Heidelberg Materials, described the sector as being in a “confidence crisis,” citing a decline in company volumes in Germany and a multitude of negative factors affecting the industry.
In January, sentiment and expectations for the German residential construction sector reached all-time lows, according to data from the Ifo Institute for Economic Research. The business climate reading plummeted to a negative 59 points, while expectations dropped to negative 68.9 points, indicating a pessimistic outlook for the months ahead.
The construction Purchasing Managers’ Index (PMI) survey for Germany in January also hit a historic low of 36.3, signaling a contraction in activity. Housing activity was particularly affected, with a rate of decline among the fastest on record.
These challenges have had broader implications for Germany’s economy. Economy and Climate Minister Robert Habeck announced a downward revision of the country’s 2024 gross domestic product (GDP) growth expectations from 1.3% to 0.2%, attributing the slowdown to higher interest rates and reduced investments, especially in construction.
While there are some signs of improvement, such as a slight easing in order cancellations, the overall outlook remains challenging. High interest rates and construction costs continue to hinder builders, with over half of companies reporting insufficient orders.
Despite the current difficulties, there is optimism for potential relief in the future. Von Achten suggested that if inflation decreases and the European Central Bank (ECB) considers rate cuts, confidence in the sector could be restored. Habeck also expressed hope for a return to the 2% inflation target level by 2025.
However, the timing of any interest rate cuts remains uncertain, with the ECB stating that discussions on the matter are premature. While markets anticipate the first decrease to occur in June, the exact timeline is still unclear.