Ifo Institute for Economic Research

Volker Russig
Mail: gluch@ifo.de
Web: www.ifo.de

The German economy has grown moderately faster in 2004 (+1.6%) because of a positive working day effect, but it is still suffering from severe domestic structural prob-lems. The employment and income uncertainty, and the strong but interrupted budget consolidation process are dampening private and public consumption. Some of the main influencing factors will now turn to a more positive direction; together with the expected new government, the chances for a stable but only flat upswing in Germany in the coming years have improved. The real growth of GDP in Germany will only reach 0.8% this year but 1.2% in 2006. For 2007 is an expansion of about 2% expected.

In spite of the trading-day and anticipation effects in new residential construction, total construction volume decreased by almost 2½% in 2004. Both factors will cause a negative response and a strong decline of construction volume in 2005 (-5%) and 2006 (-1½%). In the outlook for 2007 a moderate recovery by about 1½ % is expected.

The development of construction output differs strongly between the sub-sectors:
Despite the anticipation effect in the own-home sector, new residential construction decreased by 5% in 2004. It is estimated to fall back substantially in 2005 (-10%) and 2006 (-6%); for 2007 a rate slightly above stagnation or a moderate growth is assumed. Renovation and modernisation of the housing stock is forecast to decline moderately in 2005 but in the rest of the forecast period a continuous recovery is expected.

The downward process in new non-residential construction will continue until 2006 (about -5% in 2005 and -1% in 2006). The estimation for 2007 shows an increase of almost 2%. Until 2005 renovation and modernisation work will be reduced and in 2006 only a rather small rise in this sub-sector is expected. This will result in further signifi-cant decreases of aggregate non-residential construction in 2005 (about -3½%) and slightly in 2006 (-½%). A growth rate of about 2½% is forecasted for 2007.

Total civil engineering (new work and all "professional" building measures in the exist-ing structures) will also decline dramatically this year but it will stabilize in 2006 (more than -6% and almost +½%, respectively). A moderate increase is estimated for 2007, with impulses coming from both, new work and R&M.

Building Construction in Germany 2002 to 2007
annual growth rates, in %