July 20, 2024

German construction set to shrink for first time since financial crisis

BERLIN (Reuters) -German construction spending is set to fall in 2024 for the first time since the financial crisis, according to a study by a prominent research institute, in a further bad sign for the property industry as it suffers its worst crisis in decades.

Construction volume will shrink by 3.5% in 2024 to 546 billion euros ($597.38 billion) before recovering slightly with a 0.5% increase in 2025, the DIW economic institute said in a study to be published on Wednesday and seen by Reuters.

For years, the property sector in Germany and elsewhere in Europe boomed as interest rates were low and demand strong.

But a sharp rise in rates and costs put an end to the run, tipping developers into insolvency as bank financing dries up and deals freeze.

The last time that German construction spending declined was in 2009.

“The slump in the construction industry is taking longer than expected,” said Laura Pagenhardt, an author of the study.

A survey published Wednesday by the Ifo economic institute that showed sentiment in residential construction at an all-time low further drove home the dire situation in the industry.

“There is as yet no sign that the situation is easing,” said Klaus Wohlrabe, head of surveys at Ifo, after the December mood was recorded at the lowest level since the survey began in 1991.

“These exceptionally weak expectations show that companies currently have no hope. The prospects for 2024 are bleak,” he added.

($1 = 0.9140 euros)

(Reporting by Rene Wagner; writing by Tom Sims and Miranda Murray; editing by Rachel More and Michael Perry)

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