EconoMonitor

The Wilder View

German Construction Is Looking a Bit ‘Bubbly’

Eurostat released its volume-adjusted estimate of construction for April (release here, .pdf). Over the month, Euro area construction declined 2.75% following a large 11.41% monthly increase in March. Across the countries that make monthly data available (8 countries total), Slovenia and Portugal saw the largest decline in April construction activity, -9.3% and -6.7%, respectively, while France was the only country to see an increase in construction, +2.3%. The trend is clearly down, as 3-month over 3-month Euro area construction declined 4.8% through April.

Germany is getting a bit bubbly as regards domestic construction. This shouldn’t be surprising, given that longer dated bunds (even the 10yr) are negative on a real ex-post basis, i.e., using historical measures of inflation.

Note: I re-scaled the volume-adjusted indices to 2001=100 to fully capture the bubble in countries like Spain – the bubble illustration wouldn’t be quite as obvious with Eurostat’s index to 2005. Furthermore, the chart illustrates the monthly construction, while some countries, like Greece or Ireland, for example, list construction solely on a quarterly basis. Eurostat simply estimates construction in these countries to produce the Euro area aggregate on a monthly basis.

Going forward, this construction data does give real-time evidence that the German economy is moving marginally toward domestic-led growth….or we’re seeing the outset of a bubble in German construction.

8 Responses to “German Construction Is Looking a Bit ‘Bubbly’”

princess1960June 19th, 2012 at 8:41 pm

OK ..GERMANY LIVE INSIDE EUZ SO IS VERY NORMAL TO HAVE PROBLEM EVEN SWEDEN WE SEE IS + BUT WE DON'T SEE DIFFRENCES BETWEEN 5-10 IS NOT UP …I THINK EUZ WILL CONTINUE TO HAVE PROBLEM AND DEEPR FOR SURE ..MY LOGIC SEND TO ME TWO VERSION
1 EUZ WILL SURVIVE WITH DIFFRENT RULS AND STRONG'' METRA ''(BUT HOW REAGTION ALL THE PEOPLE )(VERY BAD) WITH OTHER NOMISMA …..
2-INSIDE 5 YEARS WILL SAPERETION AND ERO(NOMISMA) DOESN'T EXSIST.

IS REALLY VERY BAD SITUATION WAS NOT GR PROBLEM (OK YES) BUT NOT PRIMARE….SO YOU SEE WHERE IS THE PROBLEM (BANK..NOMISMA EURO) INFLATION WILL GO STRATOSPHERE….AFTER PK WILL BE RIGHT (ALLIEN)

THANK YOU

Patrick_VBJune 20th, 2012 at 1:46 pm

I'm not sure I understood everything… and the capitalised writing surely doesn't help…

princess1960June 20th, 2012 at 4:03 pm

global problem …WHY?
becuse this system is degraded?…because globalisme have more bad than good ?
because technology high have good and bad ?
because we are 7 bill ?
because we destroyed middle class ?
bcause system bank.. work with ruls (for profit maximum )with out help nothing (invest)
because the wordl is heterogen(emigration)
because education is very low (publice)
because all this i write …have behind (corruption)
so what we wait?

thank you i hop you understand now.
ah ..where is MERCEDES..in CHINA

barfJune 20th, 2012 at 1:43 am

After that comment i really will have a little bit of the bubbly. Maybe something Wilder will come along…

Patrick_VBJune 20th, 2012 at 1:58 pm

I'm not sure exactly where German long-term mortgage rates are right now, but given the relatively high inflation in Germany I wouldn't be surprised if real rates are close to zero. This could be a boost to residential building, also boosted by possible fears regarding the medium- to long-term value of the euro currency… it might be better to have bricks and plaster than euros sitting in a bank account… But more fundamentally, even if there is potential for a catch-up for low past investment, German population is ageing rapidly, and total population is falling. These factors should surely limit prospects for continued strong growth in residential investment over the next few years, unless one is expecting massive immigration into Germany over the decade…?

Rebecca WilderJune 20th, 2012 at 4:20 pm

Hi Patrick_VB,

Average fixed mortgage rate in Germany is 3.46% as of April, according to ECB interest rate data. Since the peak rate in May 2011, German mortgage rates are 0.77% lower, and they will fall further after the ECB cuts rates. The Bundesbank also quotes the ageing population as a reason why recent home price appreciation and housing price activity won't last. I wonder, though, what is the household formation rate in Germany? That could be a factor that offsets some of the adverse effects from ageing with low real rates and a tight labor market. Another thing is that German funding costs are likely to rise if policy becomes more of the mutual risk-sharing kind.

Rebecca

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