In a pine forest south-east of Berlin, workers have been busy clearing trees and building roads for Tesla’s new gigafactory, highlighting how Germany’s construction industry has kept going through the coronavirus lockdown — unlike in several other European countries.
Construction generates about 9 per cent of EU output, so the fact that most German building sites — like Tesla’s — have stayed open is set to help Europe’s largest economy outperform other countries when its first-quarter performance is unveiled on Friday.
“It was really not so easy to go ahead in the sector — there were different initiatives to stop construction in Germany because of corona — so what we did was to ensure that all the hygiene and safety measures were taken as required,” said Dieter Babiel, head of the German construction industry association.
Mr Babiel told the Financial Times that the industry was operating at about 80 per cent of normal capacity in Germany because of the pandemic’s disruption. But that is far higher than other large European economies, such as France, the UK, Italy and Spain, where most building sites closed for several weeks and some still have not reopened.
Despite the relatively resilient performance of Germany’s construction sector, the country’s economy is still set to suffer its biggest quarterly contraction since the 2009 financial crisis after the lockdown imposed in March brought many other activities to a standstill.
Goldman Sachs forecast Germany’s first-quarter output would fall 2.6 per cent, a steeper drop than many economists predicted, but still a better performance than the record 3.8 per cent quarterly contraction in the eurozone. France’s economy did even worse, shrinking 5.8 per cent in the same period, while Spain contracted 5.2 per cent and Italy 4.7 per cent.
“Germany has seen a less strict lockdown than other eurozone countries and a slightly less strict method — with no shutdown of non-essential activities — so it has not been hit quite as hard,” said Katharina Utermöhl, economist at Allianz.
Work continues on an area of cleared forest for laying the ground for the Tesla gigafactory near Berlin © Bloomberg
Germany’s sprawling manufacturing industry was disrupted by the pandemic and industrial production fell by a record 11.6 per cent year on year in March, when the country’s lockdown started — forcing some factories to close and workers to stay at home. German exports dropped 7.9 per cent that month and retail sales were down 2.8 per cent. Yet construction was one of the country’s few bright spots, with its output actually rising 1.8 per cent.
The sector, which employs about 4m people in Germany and 18m people across Europe, has been forced to overcome several hurdles to keep operating during the pandemic.
Workers have had to travel to construction sites separately rather than being picked up by a bus or van each morning, while the tens of thousands of migrant workers in Germany’s construction sector have had to self-quarantine for two weeks after arriving in the country and after returning home. On top of this, workers have to wear masks and respect social distancing rules on site and the sector has been hit by shortages of materials.
“In some cases — about 20 per cent of them — we had to close building sites because of quarantine measures,” said Mr Babiel. “In general we had a higher level of sick leave. In some cases we had some problems with supplies of materials, but even from Italy we still get tiles. It worked relatively well, much better than we feared at the beginning.”
That allowed German building sites to mostly keep working — such as on the Tesla gigafactory’s 300-hectare plot in the small town of Grünheide, meaning that it is still on track to start producing 10,000 vehicles a week from July 2021.
In other large European countries, it has been a different story. Most Italian building sites were forced to close on March 21 and, although they were allowed to reopen on May 4, fewer than a third were ready to restart at full capacity in compliance with new safety rules, according to the country’s biggest construction union Fillea.
Most French building sites closed in March because of health concerns, despite the government urging them to stay open. Some smaller sites have since reopened, but a Banque de France survey estimated the sector was only at 25 per cent of full capacity in April and was likely to reach almost 60 per cent in May.
“In the Nordic countries, Germany and other northern countries, they have kept a lot of construction open, while in southern countries they shut almost everything down,” said Domenico Campogrande, director-general of the European Construction Industry Federation. “From the figures we have, now everything is going back to normal — even those that were shut down. They are quite quickly returning to work.”
In the UK, however, housebuilders are only restarting activities slowly this month after vacating sites in March, while in Spain the construction sector has rebounded to about 70 per cent capacity after having to close for almost two weeks before Easter.
Mr Campogrande warned that even as building sites reopen, the outlook is grim for the European construction sector, which he predicted would suffer a 20 to 25 per cent drop in activity in 2020 and 2021, as new projects dry up from both the public and private sector.
German builders are unlikely to escape this sharp downturn. Mr Babiel said the construction industry association had asked the government in Berlin to boost its funding for regional states, which are responsible for building projects such as roads, bridges and schools but have suffered a sharp drop in tax income and a big jump in spending because of the pandemic.
“We have a pipeline that is getting more and more empty,” he said. “At least 50 per cent of German construction business comes from the public sector. All this will shrink and maybe stop. This makes me very nervous. We are the victims of the second phase of corona.”
Additional reporting by Daniel Dombey in Madrid, Davide Ghiglione in Rome and Victor Mallet in Paris
