German Construction Industry Anticipates Modest Recovery

The German construction industry witnessed a notable increase in orders for residential and civil engineering projects this October. This uptick was supported by declining key interest and mortgage rates. While there is a positive shift, the overall trend for the year shows a decrease in orders by 1.9% and a 1% drop in revenue compared to the previous year. Despite this, the industry's revenue adjusted for inflation saw a 1.7% rise in October.

The construction trade association, ZDB, projects that between 250,000 and 255,000 new homes will be built in 2024. This is a stark contrast to the approximately 295,000 homes completed in 2023 and falls significantly short of the German government's target of 400,000 new homes annually. The construction sector is hopeful for further reductions in interest rates by the European Central Bank in 2025, following four rate cuts this year.

Despite these challenges, the construction industry is seeing signs of stabilization, albeit at a lower level. The number of construction orders increased by 5.6% in October compared to the previous month, with both residential and civil engineering sectors contributing to the growth. However, the first ten months of the year have been challenging, with a slight decline in orders and a drop in the number of employees in the sector.

Looking ahead, the industry remains cautiously optimistic as lower interest rates could potentially make construction loans more attractive. This might eventually lead to a gradual revival of the housing market, aligning closer to the government’s ambitious housing targets.