Sentiment in Germany’s residential construction sector experienced a noticeable improvement in June, according to the latest data from the Ifo Institute. The business climate index rose from -31.4 to -25.2 points, marking the highest level recorded since September 2022.
The upward trend reflects a gradual shift in expectations, with companies shedding some pessimism and assessing their current situation with slightly greater optimism. “Companies in the residential construction sector are cautiously optimistic” stated Klaus Wohlrabe, Head of Ifo Surveys. “Sentiment is improving, but the path back to normality remains lengthy.
While the order backlog continues to be a concern, initial signs of easing are emerging. The proportion of companies reporting a shortage of orders decreased from 51.0% to 47.9%, a significant change after a period exceeding 50% for nearly a year and a half. Challenges persist, however, as project cancellations remain an issue, affecting 9.0% of companies in June, slightly up from 8.6% in May.
“The direction is positive, but the residential construction sector needs more than just announcements” Wohlrabe commented. He emphasized the need for a major boost to the sector to solidify any ongoing recovery. Furthermore, there is still room for reduced financing costs for residential housing, a factor particularly relevant considering recent interest rate adjustments.