World

German Building Sector Hit Hard by Russia Sanctions Slump

Germany has suffered more than other western European countries from their embargo on Russian gas, oil and coal imports. Several of its most energy-intensive heavy industry plants have been forced to shut down.
Sputnik
German building firms are going to the wall amid the recession brought on by sanctions on Russia.
Construction costs have soared amid the highest inflation seen in decades, and interest rates have followed — meaning developers want higher profit margins and will pay less for a completed building.
A slump in land values — exacerbated by the industry's problems — has also made projects financially riskier. The annual number of real estate sales is at its lowest since 2014.
Industry giant the Gerch Group, which had a portfolio of ongoing projects totalling €4 billion ($4.2 billion) in value, filed for insolvency in August 2023, along with the Project Immobilien Group.
"This is only the beginning. We will see more insolvencies in the coming months," warned Gerch CEO Mathias Duesterdick at the time.
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Munich-based Euroboden is now also in pre-insolvency proceedings.
One project left in the lurch by Gerch's collapse is the redevelopment of the 1950s Quelle building in Nuremburg. The city government is now looking for means to finish the huge complex of shops, offices and apartments.
"The owners want to realize their projects without consideration of Gerch Group's insolvency," said Mayor Marcus König's office. "On the city’s side, we support by continuing all planning and administrative processes."
Marlies Raschke, joint chief of restructuring and insolvency at law firm Noerr, expected the crisis to deepen.

"Project developers are struggling with the increased construction costs, increased interest rates and the drop in prices," Raschke said. "We've seen several of them filing for insolvency in the last weeks and we expect more."

He added that pension funds that invested heavily in the property market were feeling the pinch as well.
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Smaller building firms are also falling on hard times. A survey by the one in five construction companies surveyed by Germany's Ifo Institute for economic research found that more than 20 percent of companies said they had cancelled projects due to the economic climate — the highest level since the think-tank began recording data in 1991.
Heavily-industrialised Germany has suffered more than other European Union (EU) and NATO member states from the embargo on Russia's energy exports following the launch of its de-Nazification operation in February 2022. Several of the most energy-intensive manufacturers have ben forced to shut down their factories.
It is the first to officially declare a technical recession — two or more consecutive quarters of economic contraction.
The sabotage bombings of the Nord Stream 1 and 2 gas pipelines — widely blamed on either the US or Ukraine — has killed hopes of a swift return to business as usual with Russia once the conflict is over.
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