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FT.com / Companies / Basic industries - Building blocks of recovery rise over Germany

Building blocks of recovery rise over Germany
By Hugh Williamson

Published: April 24 2007 03:00 | Last updated: April 24 2007 03:00

A sharp recovery in Germany's construction sector is gathering pace, with industry turnover expanding by 20 per cent to €8.5bn ($11.5bn, £5.8bn) in the first two months of this year, according to official data published yesterday.

The recovery of the industry after a decade in the doldrums is a visible symptom of Germany's economic boom that can be gauged on building sites across Berlin. After a sharp downturn in the mid-1990s, builders are overwhelmed with work.

Alexander Harnisch, whose company Harnisch & Partners renovates old residential buildings in Berlin, says his new headache is painters and plasterers who "say yes to every project, but are then overworked and can't finish on time".

He says such contractors are "still living in the bad years, the decade from the mid-1990s onwards, when work was scarce and every contract was precious".

As a result, he has recently recruited 10 extra tradespeople to ensure projects are completed on time. "That is 10 jobs that did not exist six months ago," he says.

The sector is expected to grow 3.5 per cent this year, according to HDB, the building industry federation.

"After these difficult years it is great to be more positive again," says Heiko Stiepelmann, HDB deputy director, adding that "long-term prospects are also good". Both business-related and public sector construction work is in strong demand, reflecting the broad upturn in the national economy.

Michael Glos, economics minister, is expected tomorrow to revise upwards to2.4 per cent the government's growth forecast for this year, after the country's top five economic think-tanks issued a similar forecast last week.

The think-tanks said investment in energy-efficient building projects was the fastest-growing segment of the industry.

Mr Harnisch says the rush towards energy efficiency - sparked by environmental awareness and government subsidies - has meant shortages of, for instance, insulation materials.

The think-tanks' report predicts that the building industry will help Germany's recovery, with investment in the sector expected to grow 2.7 per cent in 2007 and 2008. In contrast, the sector's shrinkage shaved at least 1 percentage point off German growth between 2000 and 2005.

Mr Stiepelmann stresses that, despite the bright prospects, the sector's problems are not over. The use of thousands of non-registered building workers, usually from eastern Europe, damages the sector's reputation.

The industry's east-west divide also remains problematic. The sector expanded particularly rapidly in eastern Germany after reunification in 1990, as generous subsidies and overly optimistic demand forecasts led to huge over-supply.

The problems in the east remain acute. But things are improving. Construction employment has this year recovered more quickly in eastern compared with western Germany, the HDB says.

"In a couple of years' time we will have a shortage of construction engineers, because over the years fewer and fewer people have trained in this profession," Mr Stiepelmann says.

On the way up

Following Germany's post-unification building boom, the sector contracted sharply, with new investment shrinking 25 per cent between 1994-2005. Employment was halved to about 711,000, as jobless building workers swelled the unemployment queues. The current economic upswing presents a long-term basis for the sector's recovery, say industry executives.

Copyright The Financial Times Limited 2007