Increased demand for construction projects
The German construction industry is currently experiencing its fifth consecutive year of decline in real terms, with an expected contraction of about 1.8% in output for 2025 overall. This downturn is primarily driven by high construction material costs and weak external demand.
According to Felix Pakleppa, CEO of the German Construction Industry Association (ZDB), the order intake in the construction industry for the second quarter of 2025 remains positive, albeit at a potentially slower pace. This positive trend is reflected in the sales figures, which increased by 4.1 percent year-on-year in May. However, it's important to note that these figures are not directly addressed in the given paragraph.
The residential construction sector, historically a stabilizer of the economy, has weakened structurally since 2021. Single-family home activity showed a slight increase (+3.7%) by April 2025, but overall residential construction faces stagnation and headwinds from high costs and financing challenges. In contrast, orders in the high-building sector, which is heavily dependent on residential construction, decreased by around 10.4 percent year-on-year in May.
The industrial and public construction sectors exhibit fluctuating conditions. The industrial output is showing early signs of stabilization, which may positively affect industrial construction demand later in 2025 and beyond. On the other hand, large projects have a significant impact on the conditions in the industrial and public construction sectors, with orders in the civil engineering sector, which includes road construction, increasing by around 20 percent in May.
The federal government's plans to spend billions on infrastructure, such as transport modernization, rail projects, and energy-efficient renovations, are expected to boost demand in civil engineering and related sub-sectors. This spending is a positive counterbalance to the ongoing challenges faced by the construction industry.
Business sentiment in the broader economy, including construction, shows signs of resilience by mid-2025, with business expectations rising to 90.7 in June — the highest since April 2023. However, sales and order volumes overall are constrained by persistent cost pressures (materials, labor) and slow permit approvals.
The construction industry is hopeful for more support with falling interest rates, as the challenges faced due to rising material prices and interest rates, as well as the impact of the Ukraine war, are not directly addressed in the given paragraph. The EU and German governments’ large-scale green renovation and digital construction initiatives aim to provide growth pockets, especially for modernized and climate-neutral projects. Minimum wage hikes and rising labor costs are additional margin pressures but are partially offset by public financing programs focused on energy-efficiency and infrastructure.
In summary, the German construction industry in Q2 2025 remains in a multi-year downtrend broadly driven by economic headwinds and cost inflation, with slight signs of stabilization or growth limited mostly to publicly funded civil engineering and some segments of residential single-family homes. Industrial and digital construction services are emerging as growth areas aligned with broader manufacturing stabilization and infrastructure modernization.
- Despite the fifth consecutive year of decline in the German construction industry, the residential construction sector might offer some stability in the future, as the residential construction sector has weakened structurally since 2021 but showed a slight increase in single-family home activity by April 2025, with potential growth pockets in modernized and climate-neutral projects.
- In contrast to the challenges faced by the construction industry, the industrial and public construction sectors might exhibit more promising conditions, particularly in industrial construction demand, which may stabilize later in 2025 and beyond, and in the civil engineering sector, where orders increased by around 20 percent in May.
