Positive first half for German construction

25 April 2008

Construction Output in Germany Rose for the first time in seven years in the first half of 2006, according to the latest figures from Germany's federal statistics office, Destatis. The agency says construction output increased +1,6% from January to June this year, compared to the same period in 2005. Incoming orders were up +7% in real terms during the same period.

Destatis also said that the upturn in construction investment this year is the main driver behind a +0,9% increase in Germany's GDP in the second quarter of 2006. The statistics office confirmed that this is the fastest quarterly growth recorded in Germany for five years.

Germany's largest construction company Hochtief has also recorded a rise in revenues for the first half of 2006, compared to the same period in 2005. Hochtief's +20,7% growth took its H1 sales to € 7,83 billion. This, along with good H1 results for other German contractors including Bilfinger + Berger, has added weight to expectations of a return to growth for the country's construction sector.

Both Hochtief and Bilfinger + Berger have survived the German construction recession by expanding overseas but Hochtief CEO Hans-Peter Keitel said, “The German construction market is still highly challenging but continued its cyclical upswing during the second quarter.”

Despite the growth in Germany's construction sector, there are still concerns about profitability. A statement in Bilfinger + Berger's interim report said, “The upturn in the construction industry in Germany has not yet led to any perceptible effects on our business due to the continuation of unsatisfactory price levels.”

According to the Hauptverband der Deuschen Bauindustrie (HDB) - the federation of German contractors - the German construction industry currently employs just over 0,68 million people. This is less than half the number employed by the sector 10 years ago but the number of construction companies in Germany has not fallen significantly during the same period and remains at 75000. HDB deputy director Heiko Stiepelmann has said that this is leading to “ruinous competition”.

While Germany's construction industry has seen good growth during the first half of the year, contractors are not expecting the same performance during the last six months of 2006. There was a marked fall in the August Business Climate Index produced by the Ifo Institute, Germany's economic forecasting group IFO measures current business confidence as a balance value, derived through surveying 7000 German businesses, and August's survey suggests that the balance values for construction fell from -12,5 in July to -15,7 last month. But to put these figures into context, the balance value for the construction industry has risen significantly over the last 12 months and was at -37,2 in August 2005.

Ifo has said that, despite the slight decline in business confidence, it believes the German economic recovery remains robust.

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