NEW GOVERNMENT, NEW HOPE?

The German construction industry – like the country’s economy – has endured challenging times, but with a new government talking about pumping hundreds of billions into infrastructure brighter times could be coming, writes Andy Brown

Germany has traditionally been considered the ‘engine’ of Europe’s economy

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Once the powerhouse of Europe, the German economy has suffered in recent times and, alongside it, so has the construction industry. An election held in February saw Friedrich Merz’s conservatives perform better than its rival parties but come short of the 30% vote-share they had expected, meaning that they will have to rule through forming a coalition.

The plan is for Germany to have a new government by mid-April. This would end half a year of political paralysis after Olaf Scholz’s three-way coalition imploded in November after he dismissed Christian Lindner from the post of Federal Minister of Finance and broke up the coalition agreement.

The Bundestag is the national parliament of the Federal Republic of Germany and where the country’s politicians voted through a historic spending bill

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Friedrich Merz is the leader of the conservative party in Germany and has been a driving force behind the proposed infrastructure fund

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In positive news for the sector, there is cross-party agreement to spend €500 billion (US$542 billion) on infrastructure in the country. At the time of going to press, the German parliament had just passed this historic spending reform.

Hard economic conditions

Germany’s difficult economic situation is not happening in isolation – Europe as a whole is suffering.

The latest monthly survey of Eurozone construction buyers produced by S&P Global and the Hamburg Commercial Bank (HCOB) revealed that total construction activity in the Eurozone declined at its weakest rate in nearly two years in January, but new orders are still falling and the sector remains in a “slump”.

The HCOB Eurozone Construction PMI Total Activity Index rose from 42.9 in December to 45.4 in January, indicating a sharp, albeit softer contraction in activity across the euro area construction sector – any score below 50.0 signifies a contraction in activity.

The index has charted a decline in construction activity in the Eurozone for 33 straight months, but January 2025 saw the softest contraction since February 2023. The continued contraction was down to negative output trends in both Germany and France.

Yves Padrines, CEO, Nemetschek

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EXPERT OPINION: YVES PADRINES, CEO, NEMETSCHEK, ON GERMANY’S CONSTRUCTION INDUSTRY

The German Architecture, Engineering, Construction, and Operations (AEC/O) industry finds itself at a crossroads, grappling with rising costs, a shortage of skilled workers, and the pressure to modernise. Digitalisation and sustainability are increasingly seen as essential to overcoming these obstacles and positioning the sector for long-term success.

For years, the sector was seen as lagging in digital adoption, but tools like Building Information Modeling (BIM), digital twins and Artificial Intelligence (AI) are beginning to transform planning, construction, and building lifecycle management. These technologies minimise errors, save time, and reduce costs.

However, digital adoption remains uneven, especially among smaller firms relying on traditional methods. Bureaucracy has long been a burden, with excessive regulations making projects more expensive and complicated. Many delay-ridden construction in Germany projects highlight how a lack of digital integration and bureaucratic hurdles can lead to cost overruns and delays. For the industry to remain competitive, a more widespread embrace of digital solutions is essential.

Sustainability is equally critical, with the construction sector responsible for almost 40% of global carbon emissions. As Germany – and Europe – work toward ambitious climate goals, the push for low-carbon materials, efficient building methods, and recycling is intensifying. However, challenges remain, particularly with concrete recycling, which is still underdeveloped in Germany.

With the recent German election behind us, potential shifts in political leadership may bring changes in regulations affecting the sector. New policies, for example, on environmental standards could reshape the landscape. The industry must remain agile to adapt to these changes. Ultimately, the future depends on integrating digital solutions, advancing sustainability, and responding to regulatory shifts.

Housing was once again the sub-sector of construction to see the most pronounced decrease in activity levels, although commercial and civil engineering activity also fell, albeit at a slower rate than in December 2024. New orders across the Eurozone continued to decline at around the same rate as in December. German construction buyers reported the sharpest drop in new orders in January 2025 since May 2024.

Wind power is being used on the projects

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Series of headwinds

A report from research and markets called Germany Construction Market Size, Trends, and Forecasts by Sector predicted that the German construction industry is expected to shrink by 4.4% in real terms in 2024, marking its fourth consecutive year of decline.

The report says, “Across the last four years the industry has been affected by a series of headwinds including the impact of high inflation, rising material costs, and elevated interest rate hikes, alongside a corresponding lack of demand, especially in manufacturing, contributing to a fall in building construction activities.

“Despite some of these headwinds, mainly cost-push inflation subsiding... Demand in the market is yet to return to its pre-pandemic levels.” The report expects the negative outlook to continue in the German construction industry in 2025, with the country registering a decline of 0.5%, in real terms.

Despite these challenging conditions, the construction sector has been given hope by the €500 billion infrastructure plan.

Regarding the background to this, the CDU and SPD political parties first announced plans in early March to loosen Germany’s “debt brake” so that it could increase defence spending and create the fund.

However, they had been racing to establish a two-thirds majority to get the proposals through the old parliament.

The two parties are expected to form a coalition to govern the country following February's election but an increased share of votes for the hard left Die Linke party and the hard right Alternative für Deutschland (AfD) party means that it would be harder to get the plans through once the new parliament sits from the end of February.

The task of getting the proposals approved looked to be in trouble after the Greens said they would oppose them. But they have since decided to back them, after CDU leader Friedrich Merz agreed that €100 billion of the fund would be transferred to the country’s Climate and Transformation Fund (KTF). Exactly how the €500 billion would be spent remains to be determined but it is expected to fund transportation, energy, education and digitalisation projects over the next decade.

Housebuilding has been badly affected by Germany’s economic issues

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The official agreement consists of a €500 billion infrastructure fund over the next 12 years. After the €100 billion is be channelled into the KTF the remainder of the fund is dedicated to additional infrastructure investments, with €300 billion designated for the federal government and €100 billion for the state governments.

Also, defence spending of more than 1% of GDP will be exempted from the debt brake and state governments will be allowed to run annual deficits of up to 0.35% of GDP.

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The bridge suffered corrosion damage during its construction through a combination of manufacturing methods employed 50 years ago and the influence of the weather on the steel

CAUSE OF GERMAN BRIDGE COLLAPSE REVEALED

Numerous steel tendons in the Carola Bridge in Dresden, Germany, failed and caused its partial collapse in September, an independent bridge expert has found. An interim report from Professor Steffen Marx from the Technical University of Dresden’s Institute of Structural Concrete, who was commissioned by authorities in Dresden to carry out an investigation, found that the cause of the accident on 11 September 2024 was “hydrogen-induced stress corrosion cracking”.

The bridge, which was completed in 1971, suffered corrosion damage during its construction through a combination of manufacturing methods employed 50 years ago and the influence of the weather on the steel while it was being built, the investigation found. That corrosion, combined with material fatigue caused by traffic stress, led to the bridge’s failure. Over 68% of the tendons in the carriageway on the collapsed section were found to be severely damaged to the point of failure.

Nonetheless, the probe also found that city authorities had inspected the bridge in accordance with applicable standards and recommendations and had commissioned special reports. It concluded that there was no negligence on behalf of those responsible for the bridge.

The Communist-era Carola Bridge, which crosses the River Elbe, partially collapsed in September. It is a 32m-wide, pre-stressed concrete box girder bridge, built between 1967 and 1971 by VEB Brückenbau Dresden.

It consists of three superstructures with two piers, one of which sits in the river. The span at the northern end of the bridge is 58m long and the bridge was reputed to be the prestressed concrete bridge with the largest span in East Germany (GDR).

Industry reaction to funding plan

Welcoming news of the finance package’s approval, German construction association Das Deutsche Baugewerbe (ZDB) also warned that it was only “half the battle”.

ZDB chief executive Felix Pakleppa said, “The construction industry is relieved that the centrist parties were able to reach an agreement. We are confident that this decision will change our country for the better. Economic stimulus will follow, and national competitiveness will benefit. In order for entrepreneurs to plan their capacities sensibly, they need rapid certainty about what proportions of funding will be allocated to the various infrastructure sectors in the coming years.

“A financial package alone will not modernise a country. The real Herculean task of bringing the infrastructure up to scratch still lies ahead. Politicians and administrators must now deliver concrete measures to reduce bureaucracy. In highway construction, up to 85% of the time can be spent on planning processes at peak times – and only 15% on the construction itself. This is no longer acceptable.”

Tim-Oliver Müller, general manager of Bauindustrie, The German Construction Industry Association, said the fund is “urgently needed” and highlighted the recent collapse of the Carola Bridge in Dresden and the looming closure of Berlin’s dilapidated Ringbahn Bridge. He said the German construction industry stands ready to get to work modernising the country’s infrastructure.

But he added, “Now it’s important that public clients can deploy the funds in an orderly and rapid manner. The current lengthy planning processes will not achieve this. We will have to talk about what a good structure – including on the client side – needs to look like to create the structural conditions for efficient implementation.

“Only through a large number of small, medium, and large contracts will all companies in the construction industry be activated for this mammoth task.” iC