Concrete reasons for optimism: Heather Connon expects British-backed companies to build on Germany's increasing need for new homes

THE GERMAN economy may be showing signs of a mild dose of the British disease. Unemployment is rising, economic growth rates are falling and interest rates are staying stubbornly high.

But Redland and RMC, parents of two of the country's largest building companies, are confident that they will avoid the infection.

Readymix, RMC's German subsidiary, is the country's largest building materials group, with about 17 per cent of the concrete market and strong positions in aggregates, cement and concrete blocks. Braas, Redland's associate, is the leading supplier of roof tiles, producing enough to cover 470,000 roofs a year.

Both have been growing strongly. Braas's sales have trebled to DM1.76bn (pounds 740m) in seven years. Readymix's sales grew 30 per cent to DM2.99bn in 1991 alone.

For both companies Germany overtook Britain as the main source of earnings in 1991, and for 1992 it is expected to have produced the lion's share of profit. While both expect some slowing of growth in 1993, they are confident that profits will continue to forge ahead.

The reasons are twofold. First, the housing market has remained buoyant despite the faltering economy as Germany struggles to accommodate the rising tide of immigrants and refugees. It reached almost 1 million last year, bringing the total to about 3.6 million in the past five years, and is expected to remain high for at least the next few years.

That, coupled with an increasing number of one- and two-person households, meant that the number of permits issued for residential buildings rose by 10.8 per cent to 146,211 in the first 11 months of the year - and by 12 per cent in November alone. Because there is generally a time lag of six months to a year before building starts, the current year's housing output is virtually guaranteed.

Despite the increased activity, Germany is still short of houses. Erich Gerlach, chief executive officer of Braas, told an audience of institutional investors in London this month that about 1.7 million houses were needed to plug the deficit. He believes that will keep the market active.

The second reason is rebuilding the east. While western Germans blame reunification - or at least the timing and method - for present economic ills, it has at least kept the bulldozers rolling.

Derek Jenkins, finance director of RMC and a director of Readymix, expects demand from the east to more than compensate for the fall in concrete volumes expected in the west - and even there the 30 per cent of the business that is housing-related is expected to continue to perform well.

He thinks concrete demand in the east could hit 1.7 million tonnes this year, up from 1 million last time, while cement volumes could rise by more than a quarter to 1.5 million tonnes.

So far the focus of attention in the east has been the infrastructure and commercial building. Only 25,000 of last year's residential building permits were for the east despite estimates that more than half its flats are not fit for habitation. But Mr Gerlach believes that could eventually increase to 100,000 a year.

There is little doubt that conditions in Germany will get tougher. The solidarity pact between the government and the private sector is seeking wage restraint from employees in exchange for spending restraint by the public sector - and that could mean cuts in publicly-funded housebuilding or reductions in the tax incentives to private housebuyers, estimated to cost up to DM40m a year,

Housing permits fell by 30 per cent in two years after some tax concessions were removed in 1983.

Braas and Readymix, however, remain confident that the German problems can be sorted out without the boom-and-bust cycle associated with the British economy.

And, for British shareholders, there is the added attraction that sterling's devaluation means German profits are worth 20 per cent more than they were.