It has been a painful few years for the construction industry in Germany.

Russia鈥檚 invasion of Ukraine in 2022 sparked a chain of events that helped to tank the residential construction market. Inflation spiked as the country, too heavily dependent on Russian gas, entered an energy crisis.

That, in turn, pushed up interest rates. At the same time, construction supply chains were disrupted as it emerged that the sector relied on critical resources like lumber and components including screws from Ukraine, and crude oil from Russia to make bitumen for asphalt production.

In 2023 alone, Germany endured a 11% decline in its residential construction sector, explains Tim-Oliver M眉ller, managing director of construction association Bauindustrie.

His organisation represents around 2,700 of Germany鈥檚 medium- and large-sized construction companies, who together account for around 鈧�80 billion worth of the construction sector鈥檚 annual 鈧�165 billion revenue.

The collapse of Germany鈥檚 鈥榯raffic light鈥� coalition government under outgoing Chancellor Olaf Scholz in late 2024 has not helped matters, paralysing public tenders while the country鈥檚 politicians bargained over the formation of a new government.

Better times ahead?

But Bauindustrie noted earlier this month that the residential market in Germany could . Permits for multi-storey residential projects have finally stabilised at a low level at the start of this year, after a continuous decline since 2022.

And more potentially positive news has arrived in the form of a planned 鈧�500 billion infrastructure fund championed by Germany鈥檚 new coalition government, with Friedrich Merz set to become its new Chancellor this month (May). Merz has pitched the plan to relax rules on government borrowing as a way to counter Russian aggression and enhance Germany鈥檚 competitiveness in an increasingly turbulent international environment.

News of the fund has been greeted with enthusiasm and is seen as a boon for the faltering construction sector.

But M眉ller stresses to Construction Briefing that the fund is still, at this stage, only a 鈥渄eclaration of intent鈥�.

The 1960s Theodor Heuss bridge in Essen, Germany, is undergoing external post-tensioning to extend its lifespan by 15 years. (Image: Neil Gerrard)

鈥淎 lot of journalists ask us now, well, you have the prospect of 鈧�500 billion being spent on infrastructure. Do we invest in new personnel, new machines, and so on? We always say no because it is a declaration of intent,鈥� he says.

The government first needs to enact a federal law to get the money flowing into construction projects.

And to make the fund as effective as possible, a few things need to happen first, and quickly, he explains.

Currently, it is not clear exactly how the money will be spent. 鈥淚n order for politicians to objectively decide what money goes into what sector, we say that all the public clients 鈥� whether it is Deutsche Bahn [in charge of Germany鈥檚 railways] or Autobahn [responsible for its highways], and so on 鈥� need to come up with a transparent report on the condition of their infrastructure, broken down into the 16 German states,鈥� he says.

Crucially, those public sector client organisations also need to set exactly what stage the projects they are proposing sit at, before the money gets allocated. 鈥淒o they have enough planned projects in the drawer, ready to go public tender? Or do they have to spend the next two to three years planning them?鈥�

If it鈥檚 the latter, then that could be a problem because, M眉ller contends, Germany鈥檚 planning system is still too slow, with some major projects taking a decade or more before shovels hit the ground.

鈥淭he planning system has to be a priority,鈥� says M眉ller. 鈥淲e say that addressing it has to be part of a 100-day programme for the new government.鈥�

And while 鈧�500 billion sounds like a huge amount, spread over 12 years it is actually less than it first appears, which is why it is then crucial for the government prioritise and allocate the budget carefully, he adds.

An important role to play

Meanwhile, M眉ller, Bauindustrie, and its members continue to highlight construction鈥檚 importance to the wider German economy. And it鈥檚 a message that he feels politicians are more receptive to now than they have been for quite some time.

That鈥檚 partly because they have woken up to the crumbling state of the country鈥檚 infrastructure, he contends.

鈥淲hen I was growing up, or even when I started this job, I didn鈥檛 think it was possible that a bridge could collapse in Germany,鈥� says M眉ller. 鈥淏ut that is exactly what happened in Dresden and it was so lucky that the last train of the day crossed the bridge just 18 minutes before it collapsed.

鈥淎 couple of months before that, we had major bridges on the German Autobahn network that had to be closed, which caused major traffic problems,鈥� he adds.

Cause of German bridge collapse revealed as entire structure has to be demolished Interim report by independent expert determines cause of bridge鈥檚 partial collapse amid 鈥榰rgent need鈥� for replacement

He is also scathing about the country鈥檚 railways, where once famous German punctuality has given way to frequent delays.

If there is one positive result from this, however, it is that politicians have realised that German infrastructure requires a long-term strategy, he says.

That has only been enforced by shifting international relationships that recently have seen US President Donald Trump introduce (and then suspend) punitive import tariffs on countries who export more to the US than they import from the country. 鈥淭he German business model has relied for many years on exports. But due to Trump and to Putin, it is not running as successfully anymore as we would all wish for. That is why the government is looking for alternatives to stimulate the German economy from within.鈥�

It鈥檚 a situation that stands German construction in good stead. 鈥淲e know that we have a multiplier effect where every Euro spent in construction multiplies by 2.5 times in the private sector. We know that if we don鈥檛 invest in infrastructure that we lose our advantage as a business location. But also, as a major NATO country, if we were to have a crisis in eastern Europe, most NATO troops would assemble in Germany, and that is another reason for huge investment infrastructure.鈥�

Demolition crews on the A40 highway bridge between Bochum Westkreuz and Bochum-Harpen in Germany, which recently had to be closed and demolished. (PHOTO: Autobahn Westfalen)

Tariffs 鈥� little direct effect but a bigger indirect effect

M眉ller doesn鈥檛 see Trump鈥檚 tariffs as having a major direct effect on German construction. That鈥檚 because most raw materials used in the industry come direct from Germany or from European partners.

But the indirect effects, as companies scale back investment and construction projects in the face of trade barriers could be much more significant. 鈥淲e see that huge projects like the new Intel chip factory [proposed for Magdeburg but delayed for at least two years] are on hold. So we have indirect effects. The latest predictions show that the economic damage of tariffs to Germany could be 鈧�200 billion over the next four years.鈥�

Cautious optimism for the future

Nonetheless, M眉ller says that sentiment within the German construction industry is more positive now than it was at the beginning of the year, as it shows signs of emerging from five years of recession.

鈥淲e see positive effects not only from this new infrastructure fund but due to the fact that it should come in addition to the usual investments in the state budget,鈥� he says.

鈥淲e have to maintain huge pressure on that. If it takes place as we hope, then our projections will be even more optimistic than today because for the first time it appears that the German government has realised how important the construction industry is, not only in terms of housing and social development, but also in terms of economic development.鈥�

A significant increase in construction revenues won鈥檛 arrive this year but could start to come by 2026, he suggests. And he advises German construction companies not to let skilled staff go in the meantime, so that they have capacity to deal with demand when the expected upswing in activity comes.

A critical moment for Germany鈥檚 bridges As Europe鈥檚 largest economy, Germany is renowned for having first-class infrastructure but even in one of the region鈥檚 wealthiest countries, the bridges are crumbling