MNI BRIEF: German Woes Put Housing To The Fore - IWH Halle

Germany’s GDP is expected to shrink by half a percentage point this year before adding 0.9% in 2024, IWH Halle said Thursday, citing high inflation, rising interest rates, weak foreign demand and uncer­tainty among private households and firms as key factors.

Labour shortages and upward wage pressures are likely to persist into coming quarters, but elevated energy prices will continue to dampen household consumption, residential and commercial investment.

Private consumption is expected to pick up gradually as inflation falls and real incomes increase, but headline inflation will probably remain above the ECB’s 2% until 2025, IWH vice president Oliver Holtemoeller said.

Production is likely to decline in Q3, then expand moderately again in the following quarters, with the economic risks for Germany’s construction industry particularly high. “Housing construction will not recover until costs have fallen enough to make the creation of housing for people with average income profitable again. It is an open question whether such a strong cost reduction is possible within the current institutional framework," Holtemoeller said.