PRLog (Press Release) – Mar 27, 2011 – BMI View: Growth in Germany's construction sector was largely in line with our expectations in 2010. The market expanded by 1.8% in real terms during the year, just marginally below our expectation of 2.2%. Going forward, however, we anticipate that growth in the construction sector will be subdued, totalling less than 1% per year across the remainder of our core forecast period (2012 to 2015).
Our bearish scenario is predicated on the generic weakness of the German economy:
* The outlook for wider economic growth in Germany across our forecast period is subdued. We anticipate that real GDP growth will register around 2% in 2011, down from an estimate of just over 3.5% in 2010. Across the period 2012-2015, we anticipate that real economic growth will rest within a range of 1.6% to 1.8% per annum. * The construction sector will likely underperform the wider economy, in our view. The German government is gearing up for a significant period of fiscal consolidation, as its budget deficit exceeds that stipulated by the Maastricht criteria by some margin. As such, investment in infrastructure will have to be curtailed over the medium to long term. * The lack of public funds for infrastructure investment will compound the expected weakness in private sector construction, which in turn is a highly cyclical sector and therefore vulnerable during extended periods of low overall economic activity.
Risks to our forecasts are to both the upside and the downside. If the German economy manages to move back onto a higher growth path, then this will encourage both greater private sector construction activity and allow the government to take a less binding approach to fiscal retrenchment (tax receipts will be higher in the event of stronger growth). However, on the downside, there is the possibility that the global economy will experience a double-dip recession, a scenario that would almost certainly tip Germany's construction market back into a deep recession.
Germany's business environment remains reasonably strong this quarter and ranks in fourth place behind the UK, France and Australia. Germany is one of the stronger performers in this region; however, reduced rewards limit the potential for returns. Germany's highest rating this quarter was for Country Rewards at 81.51. Despite being above 80 this score still places it sixth among its peers for this category and below the average for developed states. Overall the country scored 69.3 for its business environment, which is a touch lower than in the previous quarter.
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