‘No end in sight’ to Germany’s construction decline, analysts warn… but optimism is rising in the UK

Germany’s moribund economy has suffered a new setback amid warnings of “no end in sight” to the crisis sweeping the construction industry.

In a gloomy update, Standard & Poor’s Global said the activity index among German construction companies fell to 36.3 last month, well below the 50 threshold between growth and decline.

The data provider said it was “once again one of the lowest readings” ever recorded, and implied a “sharp rate of contraction in overall construction activity”.

“Just when you think things can’t get any worse, they might,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, who prepared the report with Standard & Poor’s.

The German construction sector is expanding and deepening its decline, with no end in sight.

Construction recession: A block of apartments under construction in Frankfurt, Germany.  Standard & Poor's Global said the activity index among German construction companies fell to 36.3 last month

Construction recession: A block of apartments under construction in Frankfurt, Germany. Standard & Poor’s Global said the activity index among German construction companies fell to 36.3 last month

In contrast, S&P found optimism among UK builders to be at its highest levels in two years, with the prospect of interest rate cuts boosting sentiment.

While the activity index in the sector remained below 50 at 48.8, this was the highest since August last year, and confidence was at its strongest levels since January 2022.

“UK builders are looking increasingly optimistic that the worst may soon be behind them,” said Tim Moore, economic director at S&P Global.

Germany was the worst performer among the major G7 economies last year, and looks set to do so again in 2024, according to recent forecasts by the OECD and the International Monetary Fund.

Ralph Solvin, chief economist at Commerzbank, said that there was no change for the better in the German economy.

Germany dragged the rest of the euro zone down, with January being the worst month for the construction sector in the single currency bloc since May 2020.

Dhingra says the risks are “profound” in the UK

Bank of England member Swati Dhingra said she voted to cut interest rates last week because she did not want to risk a “deep” downturn in the economy.

The economist became the first member of the bank’s Monetary Policy Committee, which sets interest rates, to vote in favor of a cut since 2020.

But interest rates were left at 5.25 percent.

Dhingra told the Financial Times that with inflation already falling sharply, interest rates should be cut to ease conditions for distressed borrowers, while “hawks” who vote in favor of raising interest rates believe that underlying inflation pressures remain.

(tags for translation) Daily Mail

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