Construction Industry Remains Underwater

Given the wreckage of rail lines, destroyed homes and silt-swamped city centers in eastern Germany, it looked like the Elbe River floods might be just the medication the country's flagging construction industry needed.

But several weeks on, industry officials are expressing doubt that the floods will have more than a regional impact.

Earlier this week, Germany's construction industry association (HDB) reported it expected that 8,000 companies would declare insolvency before the end of the year, with a loss of 80,000 jobs. Total revenues for the industry are expected to fall by 5.2 percent from the previous year to 87 billion euro. Up until now, the industry had only expected a 2.5 percent decline.

Continuing economic weakness and more than 800,000 hours of lost labor during strikes earlier this year have thrown the industry into an unprecedented crisis.

Floods could actually be bad news for construction

HDB leader Ignaz Walter told reporters he expected the floods to bring limited stimulus to construction companies, but that it would not create any kind of "special economy" or sustainable increase in the number of construction jobs. Worse yet, the stimulus will not be enough to make up for the revenue slide during the first half of the year.

Walter painted a far more pessimistic scenario than politicians, warning that the floods could actually lead to a "flood recession" in the industry if companies and people affected by the flooding push back construction projects they might have undertaken in better times.

He also warned earlier this week that the government's plan to delay by one year a tax cut approved for 2003 could slow overall economic recovery in Germany. Nevertheless, the industry is estimating billions of euro in contracts for the rebuilding of the eastern states.

Billions in new contracts still amount to small growth

Walter told the daily "Frankfurter Allgemeine Zeitung" newspaper he expected close to 2 billion euro in contracts for the reconstruction of railways, roads and bridges washed out by the floods, as well as 1 to 2 billion to repair public utilities, including energy providers and sewage treatment systems.

The reconstruction and repair of housing, he estimated, would bring the industry an additional 4 to 6 billion euro. But those contracts would only amount to at most a small two-digit percentage growth in industry revenues.

Other groups, including the construction industry union, are backing Walter's assessment.

"We are talking about an order of magnitude of 0.5 percent of the gross national product; that's not going to cause any miracle in the construction industry," said Klaus Wiesehügel, who is head of the construction union IG BAU.

Regardless, the government flood aid would still be of some help to the crisis-shaken industry, he predicted.

A tradition of decline

The construction industry's woes are not new.

In 1995, more than 1.4 million Germans worked in the country's booming construction industry. By the end of the year, the industry association expects, there will only be 870,000 jobs left. The number of insolvencies this year is expected to be nearly twice as high as the 4,900 construction companies that went belly up in 2001.

Analysts say the decline was caused after the early 1990s construction boom spurred by reunification and the massive rebuilding of East Germany's infrastructure petered out in the mid-90s. The situation has been compounded by the country's recently stagnant economy.