Companies & Markets

Construction Industry

Boom without Bust?

Appears to have a secure job in Germany. Picture source: DPA

Source: DPA

Members of Germany’s construction industry have no reason to sing the blues. In fact, they feel more confident than ever before, a new survey by the Association of German Chambers of Commerce and Industry, or DIHK, has shown.

“Even during the construction boom following Germany’s reunification, companies weren’t as content as they are right now,” a DIHK survey summarizes the sentiment. Among the surveyed firms, 60 percent describe their current conditions as “good.” Only four percent say they were in a “bad” state.

While residential construction companies have been benefiting from an overall economic upswing and ultra-low interest rates for some time, civil engineering firms are now also feeling the upbeat trend.

Higher state spending on roads, bridges and social housing, also to accommodate a record influx of refugees over the past two years, are giving construction an additional push. Many engineering companies also see their order books filled as a result of Germany’s efforts to expand high-speed broadband to rural communities.

And construction groups see no reason for the boom to falter any time soon. Residential housing keeps seeing strong demand as incomes rise, interest rates stay low and more and more people flock to urban centers, creating the need for more apartments. State funding for infrastructure projects isn’t expected to run out soon, either.

The building boom is also promoting growth in other industries, such as engineering and architecture offices, suppliers of raw materials and the real estate sector, who all expect additional orders this year.

As a result of the good economic outlook, the DIHK also foresees other industries to expand capacity, which in turn would feed back into the construction cycle. The construction industry might even need to invest itself. “Many companies have reached their capacity limit,” the DIHK wrote in its survey, adding that a shortage of skilled labor might hamper those expansions. “Eighty percent of the construction firms that want to expand capacities consider the lack of personnel a risk for their business development.”

Germany’s finance ministry struck a more cautious tone in its monthly report on Monday, however. “Favorable macroeconomic conditions such as brighter sales prospects at home and abroad, low interest rates as well as moderate energy prices suggest that the overall economic upturn should continue throughout the rest of the year, although with less momentum than in the first quarter,” the ministry said.

But Germany’s Bundesbank, the country’s central bank, supports the industry’s optimism. “The construction sector is likely to continue to flourish, and the service sectors are likely to continue their expansion,” the bank wrote in its own monthly report on Monday, adding that the strong growth will likely continue in the spring.

Donata Riedel covers economic policy for Handelsblatt. To contact the author: riedel@handelsblatt.com

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