Outlook for German construction sector grim in 2024, researchers say

© Reuters. FILE PHOTO: View of the construction site of the Elbtower building, owned by Rene Benko’s Signa and a Commerzbank subsidiary, in Hamburg, Germany, November 2, 2023. REUTERS/Fabian Bimmer/File Photo  

By Rene Wagner and Tom Sims

BERLIN (Reuters) -The outlook for Germany's construction sector is grim for 2024, according to two prominent research institutes on Wednesday, a further bad sign for the nation's struggling property industry as it suffers its worst crisis in decades.

German construction spending is set to fall in 2024 for the first time since the financial crisis, according to a study by the DIW economic institute.

A separate survey by the Ifo economic institute showed sentiment in residential construction at an all-time low.

For years, the property sector in Germany and elsewhere in Europe boomed as interest rates were low and demand was strong. But a rapid rise in rates and costs put an end to the upsurge, pushing some developers into insolvency as bank financing dried up and deals froze.

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

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, DIW said in the study to be published on Wednesday and seen by Reuters.

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

The Ifo survey showed sentiment in residential construction dropped to -56.8 points in December, worse than -54.4 points in November. It was the lowest level since Ifo began tracking the index.

"The prospects for 2024 are bleak," said Klaus Wohlrabe, head of surveys at Ifo.

Germany has been falling short of its efforts to build 400,000 apartments a year, and the industry has been calling on German Chancellor Olaf Scholz to stem the property crisis.

Tim-Oliver Mueller, head of the German Construction Industry Federation, kept up the pressure on Wednesday.

"Berlin, we have a problem. We are not talking about abstract things, but about affordable housing, which is urgently needed," he said.

($1 = 0.9140 euros)

(writing by Tom Sims and Miranda Murray; editing by Rachel More, Michael Perry and Christina Fincher)

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