ECB Rate Cuts to Boost Slumping German Construction, Habeck Says

(Bloomberg) -- Germany’s sagging construction sector should face an upswing thanks to additional European Central Bank interest-rate cuts, according to Vice Chancellor Robert Habeck.

“The building industry is weakening and  in a slump — too little new construction is taking place,” he said in Holzminden in Lower Saxony on Monday. “This can be resolved by the ECB lowering rates again and then construction will once again ramp up.”

Speaking to workers at the headquarters of Stiebel Eltron — which makes heat pumps — Habeck acknowledged that ECB policymakers decide independently on any lowering of borrowing costs, adding that “we all assume that they will” and referencing expectations of two or “maybe even three” moves this year.

“If interest rates go down, then commercial banks will cut rates,” he said. “There are all these construction loans that are on hold: they had planned with a base rate of 0% and suddenly it was over 4.5%.”

The ECB tightened rates at a record pace between July 2022 and September 2023. While that period is now over, it held its benchmark at a record for nine months and its first cut — in June — was only by a quarter point. Bloomberg’s latest survey of economists predicts another two moves of that size this year — next month and in December — followed by four in 2025.

Still, the slump in the German construction sector predates the ECB’s rate aggression. Russia’s attack of Ukraine in February 2022 caused a confidence and energy shock in the country. Supply-chain issues also hit the industry.

With the cost of financing projects doubling thanks to the ECB’s rate hikes, building projects were put in “let’s wait and see” mode, Habeck said. When rates “go down again, then they’ll get out the old blueprints,” he said. “That’s the moment they’re all waiting for.”

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.