Economic overview
Recession concerns continue
Germany has experienced its second consecutive year of recession. The economic forecast for 2025 follows suit, and currently only slight expansion is expected. The material price escalation has stabilised, with fuel prices regressing further after a spike in 2022. Despite only a slight decrease in the number of construction building contracts in 2024, overall sales dropped by over 5.0 percent, indicating a trend towards smaller construction contracts in a contracting economy.
Source: Destatis
Source: Destatis
Predictions for the German economy remain weak for 2025, with only very slight growth forecasted. Germany is the only G7 country whose economy shrunk in the past two years, and the prospect of a third straight year of decline is a very real possibility.
According to forecasts by the IMF (International Monetary Fund) and the OECD (Organisation for Economic Co-operation and Development), Germany's GDP will grow by just 0.3 percent and 0.4 percent in 2025, respectively.
Inflation, as measured by the Consumer Price Index (CPI), has had a relatively consistent drop during the first three quarters of 2024, starting at 2.9 percent and hitting a low in September of 1.6 percent before rebounding at the end of the year with December landing at 2.6 percent. 2025 began with a drop in the CPI, with March ending at 2.2 percent. Potential tariffs and implemented tariffs (e.g. 25.0 percent on steel and aluminium) and the possibility of a trade war has shaken consumer confidence, which will continue to impact investments. This drop in consumer confidence would further limit price and economic growth, even if further potential tariffs are not implemented or do not have the expected impact. Experts forecast that the CPI in 2025 will remain around the 2.0 percent mark, which would further cool markets.
Source: Statista.com
Long-term interest rates (LTI) in Germany on the other hand, ended 2024 where they began, at 2.18 percent, while peaking in May 2024 at 2.52 percent. 2025 began with a rise of 0.30 percent to 2.48 percent and the LTI has since sunk again to 2.40 percent in February.
Source: Ycharts
The interest rates from the European Central Bank (ECB) dropped steadily during 2024, with experts anticipating further drops in 2025, due to falling inflation.
Meanwhile, the German labour market remains stable, and the unemployment rate has been stable at around 6.0 percent throughout 2024 - before rising to 6.4 percent in for the first 3 months of 2025. The unemployment rate is expected to rise further in 2025, due to the uncertain economic outlook. There also continues to be a lack of skilled labour across the German construction industry, with no end to this anticipated or forecasted. This, combined with the possibility of remaining in a recession, darkens the outlook for the 2025 construction sector.
Although the number of construction contracts stayed relatively stable in 2024 dropping by only 0.7 percent, the majority of this was in civil works, as the values of building construction orders declined by 5.0 percent compared to a rise of civil orders of 3.4 percent. This is confirmed by the drop in overall values of the building construction orders, which resulted in an overall decrease of construction sales in building construction, of approximately 1.0 percent.
Source: Destatis
Contractors have reported they are also seeing a further slowdown in the market, indicated by some of largest contractors in Germany in our most recent market survey. The market has continued to cool over the last year, with the majority labelling the current market as either lukewarm or cold.
Source: Turner & Townsend contractor survey, Q4 2024
Looking forward, contractors anticipated their workload over the next two years will regress, as expected, regressed year on year. Continuing the trend from last year, contractors are still looking for work for both this year and next, as the number of new orders decreases.
Source: Turner & Townsend contractor survey, Q4 2024
Difficult contractual and legal conditions, bureaucracy, the current national and geopolitical situations coupled with a lack of confidence in the current market was reflected in Turner & Townsend GmbH‘s latest survey among German contractors. These conditions coupled with delayed approvals and political instability are in the top challenges born by the contractors and the supply chain.
Source: Turner & Townsend contractor survey, Q4 2024
Careful planning and proper strategies are essential in the current uncertain climate. Experts are predicting for stagnation to slight growth in 2025, combined with a slight rebound in 2026. Whether tariffs and potential trade wars further cloud Germany’s future, the current situation and decline in business sentiment pose significant challenges to the construction industry.
