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• Germany’s residential construction sector recorded its steepest fall in business sentiment in four years during the past month.
• The Ifo institute’s business climate index for the sector dropped to minus 28.4 points from minus 19.3 points a month earlier.
• Rising geopolitical uncertainty, higher financing costs and fragile supply chains negatively impacted construction activity and market confidence.
• Around 9.2% of companies reported material supply disruptions, compared to nearly 1% seen consistently over the previous two years.
• The share of firms reporting insufficient orders remained stable at 43.8%, highlighting continued weak demand conditions in the housing market.
Germany’s residential construction sector witnessed a sharp deterioration in sentiment during the past month, as developers and construction firms faced rising concerns linked to geopolitical tensions, financing pressures and supply-related disruptions. Advertisement
According to a survey released by the Ifo institute, the business climate index for the residential construction sector declined to minus 28.4 points from minus 19.3 points recorded a month earlier. The fall marked the steepest decline in sector confidence seen in the last four years.
The institute noted that companies had become considerably more pessimistic about both existing business conditions and future expectations. Klaus Wohlrabe, Head of Surveys at Ifo, stated that geopolitical uncertainty had started weighing heavily on Germany’s residential construction market. He added that fragile supply chains along with increasing financing costs were creating multiple risks for the sector at the same time.
The survey also showed a notable rise in material supply issues. Around 9.2% of companies reported disruptions or shortages in material supplies during the month, compared to nearly 1% recorded consistently over the previous two-year period. The pressure was particularly visible in the supply of basic construction materials.
Germany’s housing market has already been facing pressure from elevated interest rates, weak economic growth and rising construction costs over the past two years. Higher borrowing costs have reduced housing affordability and slowed new project launches across several regions. Residential developers have also delayed or scaled down projects due to weaker buyer demand and tighter financing conditions.
At the same time, order shortages continued to remain a major challenge for the industry. The share of companies reporting insufficient orders remained unchanged at 43.8%, indicating that demand conditions have not shown meaningful recovery despite easing inflation in parts of Europe.
Recent industry data had earlier pointed to subdued residential building permits and slower housing starts across Germany, reflecting broader weakness in the construction market. Analysts have also warned that prolonged uncertainty in global trade and energy markets could further affect investor confidence and project viability in the sector.
Source Reuters
5th Jun, 2025
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