Ifo: Business Climate in German Residential Construction Sector Weakens in May

FINWIRES Analysis

A second consecutive monthly deterioration suggests German residential construction weakness is entrenched rather than a blip, even as forward expectations marginally firm. The simultaneous drop in order shortages but rise in project cancellations points to a fragile pipeline where existing work is being pulled rather than new demand failing. This matters for ECB rate-path watchers, since construction softness reinforces the case for monetary easing to revive housing investment.

Key Takeaways

Second straight monthly decline signals entrenched weakness

Cancellations rising despite fewer order shortages

Reinforces case for ECB easing support

The business sentiment among Germany's residential construction companies deteriorated in May, following a decline in the previous month, amid a persistent state of uncertainty, the ifo Institute survey said Monday.

The ifo business climate index for the sector declined to -29.3 points from -28.2 points in the previous month as companies saw a "somewhat worse" present situation despite a marginal improvement in expectations. Businesses, however, remained pessimistic over their future.

Surveyed companies that reported "too few" orders fell to 42.2% from 43.8%, whereas cancellations of construction projects rose to 11.7% from 10.8%.

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