Boston, MA -- (ReleaseWire) -- 05/01/2014 -- The German construction industry performed better than expected in 2013, as our view for a recovery in the sector plays out. In 2014 we forecast real growth in the industry at 1.6% in real terms driven largely by continued investment in the renewables sector and large demand for residential buildings. We have upped our medium-term forecast as the government moves to address low levels of domestic investment and ageing infrastructure with pledges of investing billions of euros in road and rail projects. We highlight that investment levels will remain muted however, and major projects will be subject to constrained budgets and strong opposition, as experienced by Stuttgart 21. Over our ten-year forecast period to 2023, the construction industry will average real growth of 1.4%.
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Key Trends And Developments
- After the September 2013 elections, the government aims to pump EUR23bn into infrastructure over the next four years. We tentatively factored this investment pledge into our forecasts. However, the realisation of the full amount of investment is, in our view, unlikely and subject to political wrangling. As such, we only expect a moderate boost to growth.
- Low interest rates have made mortgages affordable and German real estate has been viewed as a safe haven for European investors. As such, there has been significant growth in house prices, which should spur the residential sector.
- Due to unfavourable economics, gas-fired regeneration power plants are becoming unprofitable. Also, EU legislation will hit the coal fired generation project pipeline. As such, it is the renewables sector which will drive growth in the energy and utilities sector, and the industry should experience more sustainable growth as the government has decided to limit subsidies to the first 2.5GW of capacity which are brought online each year - prolonging investment periods.
- We are monitoring the ongoing approval process for the Fehmarnbelt tunnel project, set to link Germany and Denmark via and undersea link. A total of 24 companies forming nine different joint ventures have applied for prequalification for the four contracts making up the EUR5.5bn project. In Germany it is expected that the authorities will approve the project in 2015.
- We were of the view that Germany's Renewables Energy Sources Act (EEG) was unlikely to survive in its current form regardless of the composition of the government coalition and this looks set to play out. One of the main areas of attention for the government will be feed-in tariffs. As of 2018, the level of financial support looks likely to be determined via an auction process.
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