Germany’s construction sector remains in contraction territory, but at least the rate of decline slowed towards the end of Q2. That is helped by a stronger upturn in both civil engineering and commercial activity. However, even that hasn’t been enough to offset the drag from residential activity – which remains a big factor in weighing down business confidence as well. HCOB notes that:
“The construction sector remains in recession, although it is not quite as deep as it was in the first quarter and for most of
the two years prior to that. Residential construction is the sector that has been hit hardest, while commercial construction is
showing the first vague signs of stabilisation and only civil engineering is seeing growth again. However, the expected upturn
in civil engineering will not be enough in the short term to bring the sector back to growth overall.
“In civil engineering, the planned infrastructure package is already having an impact. The index has now risen for the third
month in a row and, for the first time since August 2023, visible growth is now also being reported. This is not yet direct
money from the €500 billion package, but it can be assumed that private companies, anticipating a surge in future projects,
have an interest in completing existing orders quickly to make room for new ones.
“Rising construction costs weighed on the construction sector in June, with input price inflation increasing to its highest level
in 28 months. The companies surveyed cited higher material costs and rising labour costs, which are being passed on to
construction companies by suppliers. Accordingly, the rates that subcontractors are charging have also risen, even though
their availability has increased significantly. Against this backdrop, the new German government’s decision to raise the
minimum wage by more than 8% to €13.90 from January 1, 2026, will certainly not please companies in the construction
industry.
“The confidence that seemed to be emerging in May turned back into pessimism in June. This is mainly due to the housing
sector, where the recession has deepened again. The Housing Activity Index has now fallen for two months in a row despite
an eighth interest rate cut by the ECB. This is also due to the fact that long-term interest rates remain relatively high, as the
rise in public debt, among other things, is preventing a decline in yields.”
ForexLive.com
is evolving into
investingLive.com, a new destination for intelligent market updates and smarter
decision-making for investors and traders alike.
