The Economic Research Institute (Ifo), one of Germany’s leading economic think tanks, published the results of its August survey on the projects of construction companies.
Accordingly, 20.7 percent of companies reported that their projects were canceled in August. The rate in question was 18.9 percent in July.
Ifo’s statement stated that due to rapidly increasing construction costs and significantly rising interest rates, many projects that were still profitable at the beginning of 2022 are now no longer economically viable.
According to the survey, while some companies’ order books are still full, 44.2 percent reported that they are already experiencing a lack of orders. A year ago, this rate was 13.8 percent.
Klaus Wohlrabe, Director of the Ifo Surveys Center, said in his assessment of the issue: “Cancellations in housing construction are climbing towards a new peak. We have not observed a comparable situation since the survey began in 1991. The uncertainty in the market is huge.” he said.
11.9 percent of housing construction companies have financial difficulties
Noting that the reduction in financing due to stricter energy saving requirements is also straining the builders’ accounts, Wohlrabe said, “Some companies are already up to their necks in water.” he said.
Stating that 11.9 percent of housing construction companies currently have financial difficulties, Wohlrabe said, “This is the highest value in the last 30 years.” gave the information.
On the other hand, the Association of Real Estate and Housing Companies (BFW) demands countermeasures from the German federal government due to the crisis.
BFW President Dirk Salewski said: “The historic high in cancellations and the massive lack of orders prove that our warnings of collapse are now coming true. This economic fever curve will continue to rise. If action is not taken soon, sick housing will be dead.” made his assessment.
BFW stated that there is a need for construction companies in the country to reduce land costs, relax financing conditions and have less bureaucracy in approval processes.
Meanwhile, the European Central Bank (ECB) is struggling with rising interest rates against high inflation. This situation slows down the economy by making investments in construction and other sectors more expensive.
While the German economy shrank by 0.4 percent in the last quarter of last year and 0.1 percent in the first quarter of the year, it failed to grow in the second quarter of the year.
While numerous crises such as the Covid-19 epidemic, supply chain disruptions and the Russia-Ukraine war in recent years have revealed the weaknesses of the German economy, many countries, especially China, are increasingly producing more goods imported from Germany and rising interest rates due to high inflation. It makes it even more difficult for the German economy to grow.
Slowing global growth, decline in exports, high energy prices, decline in industrial production, and consumers’ efforts to cope with rising inflation also negatively affect the German economy.
For this year, Ifo expects a 0.4 percent contraction in the German economy, and the Kiel Institute for the World Economy (IfW) expects a 0.5 percent contraction.
