End of Free Money Plunges German Construction Industry into Crisis

A black swan of sorts no one was ready for: Negative interest rates turned positive, and all heck broke loose in the property development sector.

By Wolf Richter for WOLF STREET.

We just got back from vacation in Franconia, Germany, where we wanted to taste the local culinary specialties and different beers, do some hiking, and do a lot of walking around the charming historic towns with their half-timbered buildings, some of them 500-plus years old, sandstone castles, and magnificent cathedrals.

In Germany, consumers, though still spending on experiences, have cut back on spending on some goods, and are no longer able to single-handedly make up for the downturn of some of the export industries that are losing business in China and the widespread crisis of the construction sector.

Unlike in the US, the German economy is not being fired up by gigantic deficit spending by the government. Deficits are relatively muted, by US standards. So Germany is now contemplating another quarter of mildly declining GDP. In Q2, GDP had 0% growth, following Q1 of -0.1%, Q4 2022 of -0.4%, and Q3 2022 of +0.4%.

End of Free Money plunges German construction industry into “crisis.”

The impossible happened in Germany, a black swan of sorts that no one was ready for: Negative interest rates turned positive.

It now actually costs money to borrow money. Which apparently came as a shock in an economy where negative interest rates were perceived to be the new normal. This is topped off by a massive bout of inflation – including construction cost inflation. And all prior assumptions went out the window.

There are innumerable construction projects all over the place –– medium- and high-rise office and multifamily buildings, industrial buildings, large-scale renovation projects of historic buildings, expressway expansion and interchange projects, other road construction, etc. They’re visible from the train, from the car, and on foot.

In Nuremberg – where I spent some time in the Old City, in some of the neighborhoods surrounding the Old City, and in the outlying residential area of Langwasser – there were construction projects everywhere, from fill-in projects in the Old City, to huge complexes of multifamily medium-rise buildings in other areas. This is far more construction than I’d seen during my last visit a dozen years ago and in my prior visits over the decades.

The German government – after opening the floodgates to immigration – has exhorted the construction industry to create 400,000 new apartments a year. That’s the government’s official target to deal with the surging rents that have turned into a housing affordability crisis, and that are further fueling inflation.

Actual construction is falling way short of the government’s target of 400,000 apartments; the current rate is about 300,000 units per year. And this is likely to get worse over the next two years, given the construction crisis.

Rental apartments are hugely important in Germany. Over half the households rent, and rents have become unaffordable.

But home prices – both single-family and condos – are now in steep decline, due to a different dynamic: Much higher mortgage rates, triggered by the ECB’s QT and rate hikes, following the multi-year price spike powered by the ECB’s QE and negative rates. I discussed this phenomenon here: QE Giveth, QT Taketh Away: German Home Prices vs. ECB Balance Sheet.

“Construction industry crisis” was term that kept cropping up in conversation and in the local news media.

The higher interest rates, when negative interest rates had been assumed to be the new normal, surging construction cost inflation, labor cost inflation, lower property prices, and difficulties in getting financing at all have caused widespread, let’s say, complications in the German construction industry. And due to the lower prices, the cost increases cannot be passed on to buyers.

Under these conditions – falling prices, surging construction costs, higher rates, and difficulties in getting financing – property developers are holding large tracts of land that cannot be economically developed, and that can be sold only at much lower prices, if buyers can be found at all. And they’re working on construction projects whose economic assumptions got wiped out by higher interest rates and falling property prices. All of these factors are leading to liquidity and insolvency issues.

Since July, there have been a series of insolvency and bankruptcy filings by major property developers, including:

  • Gerch Group, a Duesseldorf-based property developer with €4 billion in construction projects;
  • Development Partner, a Duesseldorf-based property developer, which specializes in office construction;
  • Euroboden, a Munich-based property developer, with big projects around the country, after emergency property sales had fallen through;
  • Project Immobilien Group, with about 60 big projects around Germany;
  • Centrum Group, which blamed a “toxic triangle” of higher interest rates, cost increases, and stalled investment.

The largest German residential property firm, Vonovia, wrote down its properties by €6.4 billion, blaming the drop in value on surging building costs, higher interest rates, difficulties in getting financing, and the widening gap between buyers’ and sellers’ price expectations, all of which are causing transaction activity to plunge. It warned that new construction developments are “barely viable.” In January, it had announced that it would not start any new projects in 2023, blaming inflation in construction costs and interest rates.

Given the crisis, building permits have plunged by 35% from the levels in late 2021, to the lowest level since 2012, on a seasonally adjusted basis, according to the German statistical agency Destatis, a harbinger of industry activity to come.

No one needs more office towers, with working-from-home at least on a hybrid basis having gotten entrenched in Germany, same as in the US. And no one needs more retail spaces, with ecommerce taking over brick-and-mortar retail except in some segments, such as groceries, gasoline, and services such as restaurants, hair salons, nail salons, etc., same as in the US. And that’s the price to be paid for structural changes in the economy.

But multifamily construction is crucial in Germany to deal with surging rents and the affordability crisis. And the conditions to develop residential properties have become very difficult.

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  122 comments for “End of Free Money Plunges German Construction Industry into Crisis

  1. Sporkfed says:

    Rising rates will leave their mark.

    • HermanGerman says:

      Rising rates are only one, but one important factor.

      Secondly, there is a huge wave of subsidized illegal immigration. The green German government in Berlin supports the “rescue”-ships in the Mediterranean sea financially, hundreds of thousands of Arabs (mostly young men) come to Germany plus the 1.5 mio Ukrainians (many women, children and elderly). The local German communities are responsible to get these people a place to sleep. So German communities rent as much as they can, which pushes up rents.

      Young German family fathers work their asses off to pay for higher rents while wondering if their daughters are safe as hordes of Arabs, mostly unemployable, some entering the drug trade, are wandering through the streets during the day.

      Taxes and social security: all is going up.

      German industry is leaving the country, starting with the chemical industry, automobile might follow soon, due to rising energy costs, now 50 percent higher than competitirs’.

      Value added in Germany shrinking, dividend stable, that is a suicidal combination.

      Ps.: births rates of German indigenous people plummets, death rates increase.

      • ApartmentInvestor says:

        Germany sounds like California:

        Rising rates are only one, but one important factor.

        Secondly, there is a huge wave of subsidized illegal immigration. The green California government in Sacramento supports immigrants financially, hundreds of thousands of immigrants (mostly young men) come to California. The local California communities are responsible to get these people a place to sleep. So California communities rent as much as they can, which pushes up rents.

        Young California family fathers work their asses off to pay for higher rents while wondering if their daughters are safe as hordes of immigrants (plus huge groups of drug addicted street people) mostly unemployable, some entering the drug trade, are wandering through the streets during the day.

        Taxes and social security: all is going up.

        California industry is leaving the state, automobile company Tesla might follow soon, due to rising energy costs, now higher than almost every other state.

        Ps.: births rates of California indigenous people plummets, death rates increase.

        • Warren G. Harding says:

          California has a much larger economy than Germany.

        • Nick Kelly says:

          Shocker: German economy bigger than Cali

          ‘Margin of Germany’s nominal GDP of $4.22 trillion over California’s $3.357 trillion last year (2021) was the smallest on record and is about to disappear, with Europe’s largest economy barely growing in 2022 and forecast to shrink in 2023.Apr 5, 2023’

    • TomS says:

      Let’s hope so. To date, it’s not been a big decline nationally here in the US. But, hopefully today’s 7.80% 30YFRM shown on MND is making 8% mortgage look very likely.

      Go higher rates & bring on the recession! Woohoo!

    • kramartini says:

      In the UK rising rates will extract their pound of flesh. The effects will be real bad in Brazil. Will the US buck the trend?

    • kramartini says:

      Thr Russian economy has been reduced to ruble. Japan has lost its yen for investing. Baht I hear things are better in Thailand…

      • Mojer says:


        I don’t know where you found this information, I live in Thailand and here the construction situation is in full decline, the thousands of apartments in Bangkok intended for sale to the Chinese have evaporated, tourism is in complete crisis and the economic situation is weak, and the government promised helicopter money.

  2. Depth Charge says:

    That’s no black swan, that’s a big ol’ fat Canadian goose.

  3. John says:

    Thats quite normal after years of negative interest rates policy.

  4. William Leake says:

    I never really understood the logic behind negative interest rates. If a bank will pay me interest to take out a loan, why wouldn’t I try to take out a loan, for say, a billion euros? And do it again and again.

    • Seba says:

      Well, you still had to qualify for the loan so you wouldn’t get a billion lol. But I don’t think consumers had a lot of products that were negative on their end if any, I’m sure they would have been loans at close to 0% and the lender would make money on the difference, consumer would get a practically free loan. I’m speculating ofcourse but I do remember that while negative, the rates in Europe were never so far south of 0 that every debtor could make money on their own loan.

      • Julian says:

        There were such cases in Portugal and Spain.

        Banks paid some of their customers for taking out a loan. But that didn’t last long.

      • andy says:

        I make money on my credit card loans. They keep offering me $200 for $2K spent in under 3 months on new cards. That’s negative 40% annualized in Yankee dollars.

        • Einhal says:

          Those are really acquisition bonuses, not negative interest. Be careful though, too many open cards and it can hurt your credit score.

    • Yort says:

      I never understood the logic of using a “percentage” payment method to pay buyer and seller real estate agents, as when the cost of housing doubles in say 4 years like happened in the USA, then the broker “percentage” cut of 5-6% doubles also. I seen a local house sell in six days recently, and the fee was $60,000. Does $10,000 per day seems excessive? Note the lawyer, title company, etc fees are all additional to the broker 5-6% fee in the USA.

      Question to German buyers/sellers. Does the buyer pay 5-6% “fee” to the broker in Germany? Is it percentage based pay rate or hourly rate?

      Broker fees might be changing in the USA, per Bloomberg below:

      It’s a structure largely unique to the US, preserved by the association’s control of many of the country’s multiple listing services — an essential tool that aggregates properties available for sale in a given region. To use the system, NAR requires sellers to offer compensation to the buyer’s representative, which critics say inflates home prices.

      This practice will also be on trial in two antitrust class actions, including one beginning Monday in Missouri. That case could result in as much as $4 billion in damages, while plaintiffs in an Illinois trial early next year are seeking as much as $40 billion.

      The commission-sharing structure equates to “collusion,” Michael Ketchmark, the lead plaintiffs’ attorney in the Missouri case, said in an interview. “The day of accountability is coming.”

      • Matt says:

        Broker fees are negotiable in Germany, although historically they were set at 3% plus VAT for buyer and seller each so that is sometimes still used as a guideline. They also very much depend on market situation. Right now, in a buyers’ market, broker fees would typically be borne by the seller in total.
        But it doesn’t matter since there are very few transactions right now…

    • TomS says:

      The bank DOES NOT want you money on deposit. They want you spending it to stimulate the economy.

  5. vecchio gatto veloce says:

    Welcome back.

    Is there a change in industrial and manufacturing activity due to higher energy costs? This is something I see written about from a few different “news” sources & reports. Thanks . . .

    • andy says:

      Green energy is more expensive. I think they call it hedonic adjustment. Like switching to green coal for example.

      • Wolf Richter says:

        The huge advantage of wind, solar, and hydro power for Germany is that the “fuel” (wind, sun, and gravity) doesn’t need to be imported and is “free,” while nearly all other fuels are mostly imported. Capital costs are high for any type of power plant, and highest for nuclear.

        • sufferinsucatash says:

          You do have to replace solar panels every 10-30 years depending on when they fail. So they are no perpetual energy with zero replacement cost. Add batteries and it gets even more expensive.

          But I love solar and batteries.

          Dunno much about turbines, but I bet they get expensive.

        • Bs ini says:

          Yea Germany and EU in general (Norway the exception exporter) will benefit from power generation locally without imports. For maybe 3 decades the rise of North Sea oil production and subsequent economic development of energy as well as the collapse of the Soviet Union increasing cheap energy imports into the EU have benefited the region . All cheap energy sources eventually deplete . Be prepared .

        • "Carpe Ventum!" (Seize the Wind...per Woofenden) says:

          Wolf, Sufferinsucatash,

          Ian Woofenden, senior editor of Home Power magazine, wrote a good book “Wind Power for Dummies”.
          He lives (or did) on an island in Puget Sound “off grid” I believe. Has his own turbine in any case.

          A few points from the book, its a bit dated by now, published in 2009.

          1. You need a turbine that gets lots of wind… unobstructed as much as possible… the higher up the better (to a point).
          2. Its a fair amount of work to maintain and ensure the turbine is functioning properly.
          3. Rated wind speed: the wind speed at which a wind generator’s rated power is measured. Woofenden says many manufacturers use unrealistically high speeds.
          4. At the utility (company) scale wind energy is more cost effective than solar.
          The reverse is true at the home scale.
          I’m not sure what the justification is for these being true.
          5. Most home scale wind sites get 8-12 mph average annual wind speeds. Wind farm sites may get 14+ average speeds.

          I read the book 8 years or so ago, forgot all the details. Oh yea, a kilowatt is not an amount of energy, its a rate of energy (production or consumption).
          For example, watts is the amount of energy (say, joules) produced or consumed per second.

          So a watt is 1 joule per second (rate) while a watt-hour is 3600 joules (an amount of energy) and a kilowatt hour is 3.6 * 10⁶ joules.

          Quiz to follow…

        • TomS says:

          I really wonder why France isn’t at the forefront of SMR design, development & deployment?

          It just doesn’t make sense. I sincerely hope this nascent industry takes off here in the US over the next 5-7 years.

        • Travis says:

          sufferinsucatash Where do you get your info from? Solar panels lose efficiency over the years. Anywhere from 10-18% loss of original efficiency after 25 years. This does not mean they all have to be replaced. They would lose 40% after 100 years!

        • Ian says:

          That must be why our electricity bills are shrinking every month as the turbines increase, eh?

      • Herpderp says:

        The cost of building a , its fuel, its maintenance and its lifespan are calculated for all types of energy as LCOE. In the US the LCOE of solar and wind is lower than natural gas which is why almost all new grid capacity is currently green energy. I don’t know the numbers for Germany but seeing as they don’t have fossil fuel reserves I have a hard time imagining it’s cheaper for natural gas or coal for them.

        • misemeout says:

          The problem with those is the peak energy usage rarely coincides with the peak output of solar or wind meaning you still have to build the natural gas peaking plants or extremely expensive battery banks to match.

        • Imposter says:

          For some reason, October 12, 2022, I started logging daily EU and UK wind production data from WindEurope’s daily production data. It just became a curiosity. After about 370 days collecting this daily data, the utilization of wind generator capacity seems low. I have no idea what has been spent on these facilities but it must be fairly large. Maybe I was too optimistic about these giant wind farms being able to utilize more of their capacity. Averaging the daily production, here is what I get:

          On Shore 22.6% of capacity
          Off Short 28.0% of capacity
          Combined 25.3% of capacity.

          Maybe someone can offer some thoughts on this.

        • Wolf Richter says:

          Typical capacity factors of current wind farms are between 25% and 45%.

          In the US, the capacity factor among recently built wind turbines = 42% (2021 edition of the EIA’s Land-Based Wind Market Report).

          When the “fuel” is free, you produce at the maximum rate all the time because the variable cost = 0. So if there is a lot of wind, you run at 100% capacity and shut down your fossil-fuel generators because their variable cost is high (the cost of fuel). When there is no wind, you run the fossil plants, which is more expensive.

        • Herpderp says:

          thats true, however it shifts peak load off existing gas/coal/hyrdo (which there wont be any more of) and nuclear reducing demand for peakers that can be handled by their capacity when free. For locations that have built grid scale storage from batteries they have realized cost savings relative to gas peakers. Note that grid scale storage prices dropped 70% between 2017-2020. Those solutions will only become more cost effective with time. By the time the only gains from renewables can be had by solving the peaker problem the cost of grid scale storage will likely have also been fully solved.

    • Wolf Richter says:

      vecchio gatto veloce,

      “Energy crisis” is still a term they use to describe Germany’s sudden and successful efforts to cut back on electricity consumption, to shed the dependence on Russian natural gas. These efforts spread across the economy, from consumers cutting back on showers, to cities like Bamberg (a World Heritage Site) having turned off the floodlights that illuminated the magnificent gothic cathedral and the historic area around it at night, and now it’s pitch-dark around it.

      The German chemical industry, which relies on cheap natural gas as feedstock, has for years looked for alternatives, and many have already set up operations along the Texas Gulf Coast to benefit from cheap US natural gas. And that trend will continue and may accelerate.

      So companies adjust. The bigger problems for German companies are related to specific labor shortages, rising labor costs, and rising material costs – same as in the US.

      German industrial company export large amounts of sophisticated expensive machinery, equipment, and robots, including for manufacturing plants. Some of those exports of equipment go to China, and that China business has gotten into trouble.

      • andy says:

        I think it was French who invented cutting back on showers. Long before green energy was a thing. Credit where credit is due.

      • KGC says:

        I’m currently on a three year contract in Germany, and one thing that I’ve noticed is the huge increase in solar and wind power production (this is not my first time living here). But there are signs that construction projects have slowed even on State owned properties and infrastructure work is not keeping up. This impacts a number of things, like travel times; stretches of the roads are closed longer than planned, and the trains are running late.

        The trains timetable is a big deal since most people commute via rail. I took a train to Mainz last week and the connection was almost 30 minutes behind. People were visibly upset. This is the kind of thing that becomes political.

        • Wolf Richter says:


          Yes. Nearly every ICE and IC trains we took were 15-30 minutes late due to track upgrading work or mechanical problems (one locomotive had to be replaced on an IC train. In addition, the local line out of Rothenburg experienced a mechanical problem (signaling?) that caused them to shut down all trains, and we had to take the bus out.

          The ICE train from Nuremberg to Regensburg arrived 20 minutes late for whatever reason. The cherry on the cake was the ticket machine (ticket offices are gone), which had urged me to purchase a reservation because the train would be packed. So OK. But when the train arrived, the entire second unit of that ICE train, including car #32 where my reservation was, wasn’t there. The official at the platform told me with a shrug that this ICE train has only one unit. “The AI system is not very good,“ she said.

        • KGC says:

          Wolf, you should have just bought a Bayern ticket. That would cover all the locations you’ve mentioned and can be done on your phone. (The DB phone app sucks.)

        • Wolf Richter says:

          Yes, but Frankfurt is not in Bayern, last time I checked. The two most expensive trips had Frankfurt Flughafen at one end.

        • Zaridin says:

          Having been an Austauschschueler in Weinheim, a small city near Mannheim on the Bergstrasse and only a short distance from Frankfurt am Main, I can assure you it is most definitely NOT in Bayern.

          Side note, the days I spent in Rothenburg were amazing. If you can ever go there, the walk on the city walls is cool, and they have the quaintest torture museum…

  6. Frostbitefalls says:

    Guessing what you described happening there isn’t that far behind here construction wise. Except for what the G decides to build…

  7. Wolf Richter says:

    I also spent some time with my sister, “Giggi,” in Regensburg. She makes and sells colorful decorative objects, such as these “Flaschenkleidchen” (little dress for a bottle), and these cushions whose pic I took at a refreshment stand that had bought them. Her brand name is “Giggi’s”; these objects are handmade in Regensburg. I think they’re great, their humor, colors, and beauty make me smile.

  8. Dan says:


    Enjoy your travels. And it is unlikely that Gigi’s brand will be impacted by AI or WFH.

  9. Julian says:

    Cheap energy, gas and oil from Russia, which no longer flows in abundance to Germany, is also one of the reasons why the economy is stalling. Production is already becoming more expensive across Europe

  10. Logan Kane says:

    Thanks for the piece Wolf, glad you enjoyed your time, and thanks for sharing your insight. I didn’t see a ton of construction in Austria last month but have in Australia this month. Property is always a conversation, 8% mortgages in the US and the dramatically higher rates in every Western country have to be affecting people’s thinking, at least they affect mine greatly.

    • Bobber says:

      Especially impactful is the increase in LR interest rates. An investor can easily lock into a 5% rate for 10 years or 30 years right now. For stock and RE investors, that creates an attractive alternative we haven’t seen in a LONG time.

      The increased demand heading to fixed income by itself won’t be a cure for higher LT rates because the Fed continues to issue $2-3T of new float every year. This new supply will soak up the demand, keeping upward pressure on interest rates.

      For this reason, I hear many experienced investors talking about phasing out of stocks and RE, and ST bonds, and gradually transitioning towards some LT fixed income. You never want to throw a ton of money at LT bonds all at once. Too much risk.

  11. Vincent Murphy says:

    How do you explain negative rates? It’s absolutely insane. Why would I lend money out and lose money? I do some small loans and I have a 4 year out paying me 15.75$ it’s really not enough but it works with the w only on verse of depression next 5/6 years in USA can see loan defaults on many areas coming to a cinema by you

    • andy says:

      A bank could charge you $6 monthly fee for having $1000 or less in your checking account. That’s approx negative 7% interest. Happens every day.

    • CCCB says:

      Not too different from what is taking place here in the US. Give us a year or two and we’ll catch up, just like we did with unsustainably low interest rates.

    • andy says:

      Re: Why would I lend money out and lose money?

      You deposit $10K into Chase High-Yield Savings account and get 0.3% interest. The bank gets 5.3% from the Fed on deposits. So you paid the bank 5% for the privilege of holding your money.

      Ok, not sure if this is good example of negative rates. Not an accountant here. Hope Wolf will correct it if tottaly off base.

      • sufferinsucatash says:

        Well some people need access to the money for bills that fluctuate.

        Monthly bills are sometimes a moving target, especially if one does not worry about budgeting.

        • Einhal says:

          There are plenty of online banks paying 5% that can transfer to the checking in one business day.

          There’s no reason to have any significant amount of money earning 0.3%

        • ApartmentInvestor says:

          My sister gives me a hard time about having a lot of money in a low interest checking account but I always remember the most import investment advice I ever got “return OF investment is more important than return ON investment”. I just finished the Michael Lewis book on FTX (that was light on the details of exactly how the autistic kid of two Stanford Law professors connected to the DNC first got and then lost billions of dollars). My sister has no idea what her online banks are invested in (I don’t have the time to do the research and fortunately a few grand a year in lost interest is not a huge deal for me).

        • JD says:

          So much to unpack here, but if you’re this worried of losing money in FDIC insured accounts that you’ll take 0.3% interest vs >5%, you probably should just stuff your $ into your mattress. Any crisis where the FDIC is not able to insure the deposits of online banks would mean the entire banking system had crumbled. In that situation, money is probably worthless and bands of feral humans are roaming the earth.

      • Island Teal says:

        ZIRP…. Isn’t this what we’ve had for decades? We pay the bank for the privilege of depositing our money 🤑🤑

      • Charlie says:

        My credit union is paying 4% on my checking account on amounts up to 25,000 then above that 0.16%.

      • Who Cares says:

        Why? Because the alternatives are worse. Government bonds are considered safe havens to store capital

        A lot of the negative interest rates were on government bonds. Some institutional investors are mandated to carry those bonds.
        Insurance firms buy them to hedge liabilities since the yield does not matter in that case.
        Tulip bulb mania. In this case that is speculating that the bonds go deeper into negative territory.
        Hedging against (foreign) currency exchange rates.
        This one is for completeness. Deflation, if the rate on the bond is less negative then deflation you get ahead.

    • phillip jeffreys says:

      Lot of structural diversity in the banking industry. A cursory look shows wide strategic differences in non-interest versus interest bearing income streams among the major banks.

      On a personal level, it never escaped my notice that my bank was paying me next to nothing for demand and savings accounts but charging a nice fee on credit cards.

  12. Helmut says:

    … let me add another hard to swallow “treat” for real estate and developers which are the green geniuses in our German government and their policy to outlaw carbonbased heating and demanding extremely high and expensive renovation and insulation standards and upgrading measures. Plus the out of whack buerocracy. Together with sinking buying power due to inflation, high interest rates, open borders, a war without end in sight in the not so distant neighborhood … (feel free to complete the list) the perfect recipe for a sustainable decline. Not only for real estate and developers.

    • Ervin says:

      Governments all over the world are following this path of insanity. Not to worry the 1% will just fine.

    • Hardigatti says:

      German deindustrialization is not a bug but a desired feature with the Greens. That’s what you get letting them govern.

  13. KB says:

    The same interest rates and construction cost increases in Ireland have caused supply side problems increasing demand.

  14. ScrappyDoo says:

    Wolf, as a Canadian I’m not trying to brag about my country’s level of telling bs mythical real estate construction stories, but I can’t help myself.

    Germany has double the population of Canada; Canada has averaged around 230,000 to 250,000 new units built per year. Both country’s maintain that increasing supply will make things more affordable. So, Germany states – “we need to build 400,000 units per year”. Canadain politicians, obviously dibbing into their legalized stash, state – “we need to build 750,000 units per year”. However, one more thing they share in common – new construction has dropped off. Thanks for what you do and how you do it Wolf.

  15. Dan says:

    Thank you for covering Germany in this post.

    Greetings from Bamberg!

  16. BZ says:

    I was stationed in Bayern area 2010-2014. Back then the euro was very strong compared to the dollar, and it seemed like Germans enjoyed a better overall quality of life. A more scaled back life compared to your average American enjoying excess, but Higher standards.

    I’ve been going back to Munich/Nuremberg every year since 2014, and I can feel the post covid decline. Main Train stations under construction are now bogged with slow progress, and it seems like the homeless street beggars in the busy parts of the cities made a 10x.

    One clever guy in Munich (double leg amputee) intentionally drags himself through the busiest walking areas, begging, seemingly all day long. Not the nicest sight for the little kids who have to jump out of his path.

    Munich is the worst. If you’re going to do the christkindlsmarkt thing in germany…. Think twice about Munich. It’s beautiful yes, but you’ll be packed like a sardine the whole time. Better off finding a smaller town.

    Plus they’ve scaled the Christmas markets way down post covid, to save on the electric bill. It all feels less special now.

    Cheap. Germany is on the decline.

    • Wolf Richter says:

      You should hear the people here who say “the US is on decline.”

      BTW, I didn’t do an official count, but I saw lot fewer homeless people in Nuremberg than I saw last time I was in Tulsa (Nov 2021), and Tulsa is smaller than Nuremberg.

    • LKinAZ says:

      Thanks for the travelogue, Wolf! I was stationed in Munich in the late 70s and absolutely loved it. The Christmas market was jam packed event then. Oktoberfest wasn’t quite as crowded back then; it was a zoo when I went back about 5 years ago.

  17. dearieme says:

    What, worse than Mutti Merkel?

  18. perpetual perp says:

    History is full of examples where too low interest rates encourage speculative lending which feeds into an inflationary episode. Japan, so far, is an outlier. I believe that Japan’s Central Bank buys most of the debt it issues. So, maybe more control than if the Central Bank, like the U.S. sells into the secondary market.

  19. Robert Hughes says:

    It is my reading from several sites with authors reporting ( both Germany and Austria) from the street level that inflation in basics; food, utilities, rent is very high and a significant number of economically poorer citizens are really struggling.

  20. fred flintstone says:

    Meanwhile in the recessionary US…..Retail sales explode….revised upward.
    The sailors just cracked open another case of JacK Daniels to celebrate 34 trillion in debt.
    Negotiations for Speaker by the tough budget minded Jordan…..I need your vote….of course you can have anything you need for your district.

    • William Leake says:

      I wonder how much of the increase in retail sales is driven by inflation. Perhaps a Real Retail Sales number might be more informative. For example, if I bought a jar of mayonnaise last month for three dollars, and bought the exact same jar this month for four dollars, I would experience a 33 percent increase in retail sales. But I have not bought more stuff.

      • Wolf Richter says:

        Wait a minute… Retailers sell goods. Many goods have experienced price drops in 2023, including used cars, consumer electronics, a bunch of food items, etc. Durable goods prices overall have falling this year (CPI durable goods -2.2% yoy) Inflation has moved from goods to services, but retail sales do not include services. So if you adjust retail sales to inflation, “real” retail sales would likely be even higher based on the dropping prices of those goods.

        • William Leake says:

          You supply CPI for durable goods, but food is not a durable good. CPI for non-durables rose 3.2% for 12 months ending Sept 2023. But I suppose we need CPI for all retail items or all commodities or all goods.

          It’s nice that BLS gives relative importance of its CPI categories, but I don’t feel like messing with a spreadsheet, although it could be done. It would have to merge retail sales categories with CPI categories. FRED has done something like this and gives Advance Real Retail and Food Services Sales, Millions of 1982-84 CPI Adjusted Dollars, Monthly, Seasonally Adjusted. It gives MoM of .32% 8/1/24 to 9/1/24. BLS gives Advance Retail Sales: Retail Trade and Food Services, Millions of Dollars, Monthly, Seasonally Adjusted. This gives .71% (which is the nominal figure), kind of a big difference from .32% (the real or inflation adjusted figure). Unfortunately it includes services.

  21. Spencer says:

    “the demand for money is inversely related to the interest rate”

    That’s another fallacy. In the US, the demand for money fell (velocity rose), as the FED started tightening.

    An increase in FED credit, during a fall in velocity, produces negative rates of interest. That’s the economy running in reverse.

  22. Brewski says:

    Negative interest rates. Perfect example of central bank policy proving Einstein’s comment ,to paraphrase: “insanity is making the same mistake over and over again and expecting different results.”

    Greed and stupidity reign supreme in modern fiscal and monetary policy.


    • Escierto says:

      Although widely attributed to Einstein, he never actually said this quote and it appears to have originated about 1980.

  23. TomS says:

    No. That would be EU open borders but it’s a close second ; )

  24. Not Wolf says:

    You went to Franconia for beer? I’m assuming it was a Riesling style

    • Wolf Richter says:

      The grapes grown in Franconia span a huge variety, and I tried some of them. But I’m a beer lover, and Franconia has a huge variety of small brewers and beers, and so I had to taste whatever I could get my hands on.

      From the eternal wisdom of Wikipedia: “With more than 200 independent breweries which brew approximately 1000 different types of beer, Upper Franconia has the world’s highest brewery-density per capita.”

      What is interesting is how they emphasize malted barley in all varieties and colors, smoked and non-smoked. It’s all about the malted barley in Franconia. So that malt-forward flavor takes some getting used to for a guy like me that loves the hop-forward flavors of American IPAs.

      • Not Wolf says:

        Now you’re just making me sad, I had to switch to wine when I couldn’t handle gluten anymore. I miss beer so very much

        • Mitry says:

          I know this is a financial website, but I try to contribute in whatever way I can. You can reverse your gluten intolerance by consuming glycine-rich foods. Cooking is a valuable skill to have. Bone broths made with chicken carcasses, fish, or beef knuckle are the best sources.

          Learn about the difference between cheap beer and real beer. Once your stomach is healed, I’d go so far as to say unpasturized beer is a health food.

          Shorter showers are the least of our worries, take care of your health.

  25. phillip jeffreys says:

    So what’s happening with German GDP since Feb 2022?

    • Wolf Richter says:

      GDP in Germany is measured quarterly not monthly.

      So from the beginning of 2022 through Q2 2023, “real” GDP (adjusted for raging inflation) grew by a tepid 0.75%.

      What were you hoping for?

  26. Debt-Free-Bubba says:

    Howdy Lone Wolf. Just read your first paragraph, WOW. OK, will read the rest of your article now. Life is good.

  27. JX says:

    do German cities have rent control?

    • Who Cares says:

      But since that is the misleading answer.
      No, they have it on the federal level but with exceptions.

  28. AV8R says:

    Look at the long end action in UST.

    Flatter for longer??

    • Wolf Richter says:

      What do you mean? The 10-year yield rose by 12.6 basis points today to 4.84%, the highest close since 2007.

      • Fast Eddie says:

        And the 30 year is only 8bps from 8%. Per Mortgage News Daily, the 30 year fixed is 7.92% (15 year 7.25).

        I’ve long felt that an 8% 30 year mortgage will be the psychological breakpoint to take the legs out of the residential housing market.

        The change from 3% to 8% (and with a constant downpayment) means that a purchaser who could afford the monthly payment on a $700,000 loan @ 3% can now only afford the monthly payment on a $450,000 loan @ 8%.

  29. Zaridin says:

    And, in a sense, may be responsible for bringing on a Fourth. Instead of “anger over the terms of the Versailles Treaty” meeting the economic dislocations brought on by the Great Depression, it’ll be “anger over the immigration” coupled with the economic dislocations brought on by the after-effects of NIRP. Dealer’s choice which country right-wing nationalism finally kicks over the EU can first though, since it’s not just in Germany that populism is knocking on the doors of mainstream parties.

    • Escierto says:

      Yet the Polish people just rejected the extreme right wing party that governed it in favor of a sensible government. Doesn’t this run counter to your narrative?

      • Zaridin says:

        Absolutely. I wasn’t trying to suggest this trend is universal across Europe, nor inevitable. However, it IS in the rise in quite a few EU members.

      • Zaridin says:

        *on the rise

  30. David Alexander says:

    As someone whose had relatives cooked in a Third Reich oven, I’m sure if you had the same family history, you might agree the equivalency of those events to unfavorable interest rates, is not so easily compared.

  31. SoCalBeachDude says:

    MW: Long-term US Treasury yields may resume their march higher despite recent bond-market swings, BlackRock says

  32. SoCalBeachDude says:

    It was blatantly obvious for all to see that interest rates had no place to go but up, up, and away as risk of losses kept rising and still keeps soaring into the highest in the history of the globe. Wake up people.

  33. tannin says:

    To whichever contributor wrote of ‘an endless war close by’ as a tribulation for Germany……..only so, for as long as Germany hides in the bushes and avoids facing reality……Russia has invaded Europe, Germany is the most powerful country in Europe, and Germany prefers to let the U.S., U.K. and the eastern European members of Nato take the burden, while it considers, pauses, re-considers, contemplates, muses about, gives serious consideration to………getting of it’s fat German tush and sending arms and munitions enough for the Ukrainians to fight.
    Of course, that would require a decision from Scholz, and he doesn’t do those………
    Yeh, I’m a bit peeved at Germany…it was Angela who refused to admit Ukraine to NATO….she didn’t want to upset Russia……if it were in Nato, Russia would not have invaded…..no way.
    Yes, Germany is going through a very difficult economic period, and it’s auto industry, a major part of it’s economy, has fallen behind ……..otoh, in the area we deal, heavy sophisticated metal working equipment ….they’re still tops.

  34. joe2 says:

    “And due to the lower prices, the cost increases cannot be passed on to buyers.”

    “housing affordability crisis, and that are further fueling inflation”

    “Over half the households rent, and rents have become unaffordable.”

    Help me out here. half the article says costs and inflation and rents are increasing and the other half says builders cannot pass on costs because of falling prices.

    Perhaps time for Germany to let BlackRock take over their RE market.

    • Wolf Richter says:

      Wait a minute… This is CRE, and prices at which developers/builders sell the properties to landlord-investors. CRE prices have plunged. Builders have to sell those CRE properties to income investors. But the prices that these income-investors are willing to pay — if they’re even buying at all — are lower than they were, and developers/builders cannot cover their costs from those sales prices.

      So that’s for apartment buildings. Office and retail buildings are toast for those and other reasons mentioned in the article.

      • joe2 says:

        OK I see your point. It must be difficult and expensive financing purchase from builders to rent out. Commercial I see is dead but residential should still be a reasonable play. Why don’t the builders just hire a management company to rent out units? Or do they need a total buyout to pay off their short term construction financing?

        That’s why I suggested BlackRock buy it all out. They always seem to be well funded.

        BTW, I went to my bank to see what unsecured credit line they would offer a business – pathetic.

        • Wolf Richter says:

          I constantly get flyers from my bank for my corporation to open a $100,000 working-capital line of credit at prime +2% (ca. 9% now, LOL). But they want me to sign a personal guarantee and pledge one arm, both legs, and my first-born. Thank god I don’t need to borrow to run my business. I went through that a few times before. Banks can be good and essential partners, but they can also tighten the noose around your neck.

      • joe2 says:

        BTW – on the personally secured lease – I counter-offered the 6 month security deposit and it was presented, and have not heard back yet. But I won’t sign a personal guarantee and will shut down the business if necessary. I’m getting too old for this shit. Running a small business now is 50% working for taxing and licensing authorities, utilities, landlords, lawyers, insurance companies.

        And with NIH, WHO, UN, and Gates insisting there will be another pandemic.

  35. eg says:

    Meanwhile, deindustrialization continues apace in Germany thanks to its loss of access to cheap Russian gas and metals.

    So it goes …

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