Despite receiving strong support and investment from the government, Germany's construction sector remains in the doldrums, with no sign of improvement any time soon, according to a respected analyst.
ADVERTISEMENTGermany's building sector has been in crisis for months and is still failing to show any signs recovery with the latest economic data revealing the industry is still in a "dismal situation", ING senior analyst Carsten Brzeski has told CNBC.
Data published last week showed that permits for new builds dropped 24.2% in May compared with the same month last year while permits for new builds over the past two years have fallen nearly 40%.
The industry's outlook continued to "only know one direction: downwards", Felix Pakleppa, head of the Central Association of the German Construction Industry said in a statement last week, going on to explain the sector had not grown since 2022.
Housebuilding usually took two years from when a permit to allow building was issued to the time the building was completed, he said.
"You don't need a statistics degree to realise that Germany is sliding into a deep housebuilding crisis," he added.
Long-lived issues
Germany's building industry has been facing challenges for some time. The industry hit all-time lows this year due to rising interest rates and high inflation.
The issues exacerbating the permit decline matter are not expected to improve anytime soon, Carsten Brzeski, ING's global head of macro research and chief economist for Germany told CNBC.
Head of surveys at the IFO Institute for Economic Research, Klaus Wohlrabe agreed that the lack of permits is expected to persist. Rising costs for households to build homes continues to be the "fundamental problem", he said.
Government Support
The German government has pledged its support to this long-term crisis in its 2025 budget plan which plans to improve investment for the sector and increase the amount of houses being built. This plan has highlighted the importance of affordable housing while also incorporating more social and financial support for households to build climate neutral homes.
However, the government's approach has shown "very little impact", said Brzeski, adding that the plan still continues to remain unpromising.
"The new measures again go into the right direction but are currently still too small in size to be a real game changer," he said.
Brzeski said the only way to make a true difference is by increased government spending and temporary measures to improve the sector such as tax cuts and decreasing the transaction costs.
