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Why Germany is back in fashion

Finance City site

EUROPE'S largest construction industry is on the brink of recovery. For the first time since 1994 analysts expect German construction output to increase next year.

According to brokers' analysts at Schroders, a combination of the weak euro, lower tax rates and a more stable political picture will boost privately funded work next year.

Although output is continuing to fall in the eastern states, a recovery in the commercial, industrial and residential sectors in the west means output across the country should be stable this year and rise by 1.3 per cent next year.

Germany has been the scene for some major investments by the UK building materials industy, notably, RMC - which relies on the federal republic for a quarter of its sales - BPB and Pilkington and which all stand to gain from a recovery in prices and volumes in the region.

It is less clear whether the prospect of an upturn will tempt major UK contractors to chance their arm in Germany.

In their enthusiasm for the single market most of the majors pursued German contracts in the early 1990s.

Yet many, notably Tarmac, Amec and Mowlem, came to grief as the market tightened up and the re-building programme failed to meet expectations.

They will be anxious not to repeat that experience but it may be that the recovery will prompt some to start looking at acquistions again in a country which offers a construction market three times the size of the UK's.

Cool on housing

THE likelihood that interest rates may have levelled off in the UK has not appeared to have done much to revive City sentiment towards the house builders.

Although most companies report sales holding up, anecdotal evidence is growing that the housing market is cooling in many areas.

Nationally, the push into brownfield development and the Internet should help, although the industry may have to work hard over the summer to maintain last year's sales.