The German economy continues its disastrous period, the latest data published by the Ifo, a statistical institute in Berlin, shows that the housing sector, one of the “engines” of German growth, is sinking into crisis, Reuters reports.

Figures published by Ifo show that 22.2% of construction companies reported canceled projects in October, compared with 21.4% the previous month.

“[Situația] Continually worsening, more and more projects are failing due to high interest rates and rising prices for construction materials,” says Klaus Wohlrabe, head of research at Ifo.

“In residential construction, the number of new projects remains very low, and the backlog of companies is shrinking,” he added.

Additionally, the percentage of construction companies reporting no orders rose to 48.7% in October, also up from 46.6% in September.

The seriousness of the problem is indicated by the fact that in October 2022 this percentage was only 18.7%.

“Almost half of the builders are now suffering from a lack of orders, and the number is increasing every month,” notes Wohlrabe.

German construction companies in crisis after years of “boom”

Along with the automotive industry, the construction sector has been one of the “engines” of economic growth in Germany for many years. Billions of euros were invested in this sector at a time when interest rates were low and real estate was considered a stable and safe investment.

But the former situation already seems a distant memory in the context of rapidly rising interest rates, just like the prices of building materials in the context of historical inflation. Many German developers are now on the brink of bankruptcy as bank financing becomes more difficult, projects are suspended or canceled and property prices fall.

Preliminary data released last week by Eurostat, the European Union’s statistical institute, showed that the German economy shrank by 0.1% of GDP in the third quarter of the year, again failing to turn into a surplus.

The German economy entered recession in the first quarter of 2023. It failed to emerge from recession in the next quarter, recording zero economic growth, prompting some analysts to speak of the “twilight zone” of Germany’s economy, the world’s largest. EUROPE.

Bad prospects for the recovery of the German economy this year

The construction and real estate sectors were among the hardest hit by the European Central Bank’s repeated hikes in key interest rates to rein in galloping inflation in the eurozone.

In September, the ECB again raised key interest rates to the highest level since the introduction of the euro in 1999.

Also in September, a report published by the European Commission estimated that Germany is heading for a prolonged recession this year, becoming the only major European economy to experience an economic downturn in 2023.

“Weakness in domestic demand, especially consumption, shows that high consumer prices for most goods and services, which are still rising, are having a stronger impact than expected,” the European Commission said in a statement at the time.