German construction sector faces major slump in 2024

Germany's construction sector has little to look forward to this year, with spending falling for the first time since the financial crisis in 2009, two prominent research institutes said on Wednesday.

The current crisis comes after the property sector experienced a yearslong boom driven by low interest rates and strong demand.

Rates and costs have now risen, leading to the cancelation of deals and difficulties in receiving bank financing. The problems have pushed a number of developers into insolvency.

What did the institutes say?

According to a study by the DIW institute to be published Wednesday, construction volume will shrink by 3.5% to €546 billion ($597.38 billion) in 2024. 

It will then recover slightly with a 0.5% increase in 2025, DIW said.

A separate study by the Ifo institute showed sentiment in residential construction at its lowest level since Ifo began recording such trends in 1991, dropping more than two points from November to reach -56.8 points in December.

The head of surveys at Ifo, Klaus Wohlrabe, called the outlook for 2024 "bleak."

He said 22.1% of construction firms included in the study had spoken of canceled projects, compared with 21.5% in November, while 56.9% complained of having too few commissions.

The author of the DIW study, Laura Pagenhardt, said the government needed to provide more guarantees over funding programs.

"To get the construction industry moving again, it is very important for politicians to remove any uncertainty about subsidies as quickly as possible," she said.

"That especially includes subsidies for energy-efficient building renovations but also for the construction of new housing," she said.

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