A tentative thaw in sentiment is emerging within Germany’s beleaguered housing construction sector, according to the latest survey from the Ifo Institute in Munich. The business climate index, a key indicator of industry health, rebounded significantly in September, climbing from -26.4 to -21.8 points. This marks the highest reading since August 2022, hinting at a potential easing of long-standing pressures within the industry.
The improvement reflects a more optimistic assessment of both current conditions and future prospects among construction firms. Klaus Wohlrabe, head of Ifo’s surveys, characterized the shift as a “breathing space” for the sector, cautiously suggesting that “the trough may have been passed”. However, Wohlrabe stressed that a genuine turnaround remains distant.
Despite the encouraging upturn in overall sentiment, fundamental challenges persist. The sector continues to grapple with a precarious order backlog. The proportion of firms reporting an order shortage edged upwards from 45.7% to 46.7%, a clear indication that demand hasn’t fully recovered. Moreover, the volume of order cancellations remains elevated at 8.4%, albeit slightly lower than the previous month’s 8.5%.
This disconnect between rising building permits and a corresponding surge in firm orders raises crucial questions about the efficacy of government policies intended to stimulate housing construction. While the approval of new permits signals potential future activity, the lack of immediate impact on order books suggests a potential lag effect, or more concerningly, a deepening disconnect between ambition and reality. Critics argue that rising interest rates, persistent inflation impacting material costs and complex regulatory hurdles are actively hindering the translation of approved projects into tangible construction work, potentially undermining the intended benefits of easing permitting processes. The latest data highlights the need for a more nuanced and comprehensive approach that addresses the multifaceted barriers preventing the housing sector from fully rebounding.