German residential construction confidence sees sharpest fall in 4 years

Germany's residential construction business climate posted its sharpest decline in four years in April, as geopolitical uncertainty, fragile supply chains, and rising financing costs hit sentiment in the sector, the Munich-based ifo Institute said Friday.

The business climate index for residential construction fell to minus 28.4 points in April from minus 19.3 points in March, marking the steepest monthly drop since April 2022, according to the institute’s business survey.

Companies became significantly more pessimistic about the months ahead, while their assessment of current business also worsened.

“Geopolitical uncertainty is now also weighing on residential construction in Germany,” Klaus Wohlrabe, head of surveys at ifo, said in a statement.

“With fragile supply chains and rising financing costs, the construction industry is facing multiple risks at once,” he added.

The share of companies reporting material shortages rose sharply to 9.2% in April, after hovering around 1% over the past two years, with bottlenecks particularly concentrated in basic materials.

The share of firms reporting insufficient orders remained almost unchanged at 43.8%, while order cancellations were broadly stable at 10.8%.

Germany’s residential construction sector had shown signs of recovery after three years of decline, supported by easing pressure from high interest rates and material costs.

Building permits rose 24.1% year-on-year in February to 22,200 homes, signaling a possible recovery in the market, according to figures from the Federal Statistical Office.

However, the war in the Middle East, which began in late February, has reversed the improvement in sentiment, adding renewed pressure through higher energy and raw material costs.

Higher financing costs are also expected to remain a drag on housing demand and new construction activity through the year.