The German economy is currently in a pronounced phase of weakness. After a 0.3 % decline in gross domestic product in 2023, no significant growth is expected for 2024 either. The leading economic research institutes are forecasting GDP growth of up to 0.3% at most. High energy prices and interest rates as well as weak global trade are also likely to put pressure on economic development this year. The turnaround in interest rates, high construction costs, worsening housing subsidy conditions and pronounced uncertainty for everyone involved in construction have already triggered a downturn in the construction industry in 2022. This worsened massively in 2023 and hit residential construction particularly hard. Real construction investment in 2023 fell by 2.7 % compared to the previous year; the decline in residential construction was 3.4 %. While construction companies had to contend with material bottlenecks in particular in 2022, the main complaints in 2023 were a lack of orders and cancellations. The demand situation in construction has also caused the production of building materials to collapse: The production index fell by 16.4% in 2023, with residential construction-related sectors such as the tile and brick industry recording even greater declines. The precast concrete industry is also affected by significant declines, although the drop varies depending on the product group. Overall, the sector is experiencing less severe declines than sectors that are purely focused on residential construction due to the diversified customer structure.
The slump in demand for building materials continued at the start of 2024. In the first quarter of 2024, there was a further year-on-year decline of 15.3% in the production of building materials, bricks and soils. Sub-sectors that primarily supply the residential construction sector also had to cope with declines of 30 to 60% in the first three months of this year compared to the already weak months of the previous year. The outlook remains negative for the time being. The latest figures on building permits continued to fall, with the number dropping by 24 percent up to and including February 2024. In view of this, it must be assumed that the construction crisis will not be overcome in the short term, although the construction segments are likely to continue to develop differently. While the outlook for residential construction remains weak, the decline in non-residential building construction is likely to be less pronounced, as the segment as a whole is less sensitive to interest rates. The outlook for civil engineering is cautiously positive: significant investments are planned in the renovation of the rail network and the expansion of the energy infrastructure. For the building materials, bricks and mortar industry, the bbs expects production to fall by 5 to 10% in 2024 compared to the previous year.
Demands on building policy
The current housing crisis is having a significant social and economic impact. The shortage of living space due to the far too little new construction is likely to cause rents to continue to rise significantly and is an obstacle to immigration into the labor market. The German government has already introduced measures to stabilize construction activity, such as the temporary introduction of declining balance depreciation in rental housing construction and the planned expansion of KfW subsidies. However, the sharp rise in interest rates remains a challenge. A broad-based interest rate reduction program could make an important contribution to boosting construction again. In addition, all ancillary building costs, such as land transfer tax, must be scrutinized. In the area of public construction, a reliable financing perspective is of central importance: clear signals are needed from politicians to ensure that funds are made available in line with demand so that the necessary capacities can be maintained in the construction industry.
