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German builders expect recession amid high energy costs

Site sign in German says “No Trespassing. Parents are responsible for their children.” German construction output in 2023 is expected to be worth around half a trillion dollars (Tomnex/Dreamstime.com)
More than half of German construction companies expect a decline in output this year and only 15% think their businesses will expand, according to a survey by the German Economic Institute (IW), seen by Reuters.

Sentiment is slightly more optimistic for the economy, where 40% of companies say business activity will probably shrink because of supply chain issues and energy costs driven higher by the cut-off of Russian gas.

Around a third of the 2,500 companies surveyed expected output to stagnate and the remaining 25% predict growth.

The IW commented: “The risk of a gas shortage in the winter season is no longer as present as it was in the summer of 2022, and energy prices have also retreated since then. However, they remain at a high level and production disruptions cannot be ruled out.”

“Moreover, it will only become clear in the course of 2023 how extensive gas and energy supply can be built up for the next winter and the extent of any possible disruptions that could occur in 2023.”

The findings were supported by the latest Purchasing Managers’ Index report from business information firm IHS Markit, which found that confidence among German construction companies had hit a 19-month low.

As with the  IW report, this survey suggests that the effect of war in Ukraine on energy supply, the effect of energy supply on inflation, and the effect of inflation on interest rates will tip the eurozone economies into recession this year.

The German economy, Europe’s largest, is forecast to shrink by 0.3% next year, the most among G7 nations, according to the International Monetary Fund.

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