Business Climate in German Residential Construction at All-Time Low

The ifo Business Climate Index for residential construction has sunk to an all-time low. Sentiment in December fell to -56.8 points, down from -54.4 points in the previous month. This is its lowest level since the survey began in 1991. Dissatisfaction with the current situation is escalating. Companies also fear further business losses in the first half of 2024. “Although interest rates for home loans have recently been falling again, there is as yet no sign that the situation is easing,” says Klaus Wohlrabe, Head of Surveys at ifo. “These exceptionally weak expectations show that companies currently have no hope. The prospects for 2024 are bleak,” Wohlrabe says.

More companies complained of order cancellations in December. “Potential builders’ uncertainty is deep-seated,” Wohlrabe adds. In December, 22.1% of survey participants reported canceled projects, up from 21.5% in the previous month. A total of 56.9% of companies complained that their order backlogs were too low.

“2023 was an extremely difficult year for residential construction, with new business remaining far below the level of previous years. This was a consequence of the drastic rise in construction and interest costs as well as weaker subsidy options. Only the high order backlog with which companies went into the crisis plus the fact that projects had long durations prevented an even greater slump in construction activity,” Wohlrabe says.