Construction Industry Orders Tumble in September, Yet Show Resilience
Although the German construction industry saw a decrease in orders in September compared to August, the sector showed resilience with a 13.2% price-adjusted increase compared to September 2022. The Federal Statistical Office reported that adjusted for price effects, orders decreased by 7.3% in September.
Building construction demonstrated an increase of 7.9%, while civil engineering saw a decline of 18.8%. However, civil engineering's incoming orders were unusually high in August due to several large orders.
The overall construction industry has been impacted by the ongoing economic situation, resulting in fewer orders in September when compared to August. Yet, the sector showcases some fortitude, as demand significantly improved compared to the previous year.
High energy costs and an economic downturn are among the key factors negatively impacting the construction sector. The prolonged period of economic stagnation in Germany is affecting various industries, including construction, making it challenging to maintain profitability and competitiveness.
Supply chain disruptions, material shortages, and administrative burdens also contribute to challenges in the construction industry. These factors, combined with high interest rates, have resulted in bankruptcies and a decline in orders in the sector.
Low sentiment and pessimism among firms are also common in the construction sector. The Ifo Institute's survey reveals that 57% of construction firms indicated a lack of contracts, signifying widespread concerns about future business conditions.
The debt brake policy, which restricts debt take-on in both regional governments and the federal government, has led to underinvestment in infrastructure, resulting in aging railway and road networks. This ongoing challenge further affects the construction industry's performance.
The residential sector, a significant part of the construction industry, is particularly hit by high costs, low demand, and bureaucratic hurdles. The demand for affordable housing is high, but supply remains insufficient, leading to a persistent shortage of orders.
In summary, the decline in construction orders in September 2023 is due to a combination of factors, including high energy costs, an economic downturn, and bureaucratic hurdles. Despite these challenges, the construction industry has shown resilience by recording a 13.2% increase in orders compared to September 2022.
