Germany's construction industry is expected to shrink by 4% this year, slightly worse than the earlier projection of 3.5%, leading to around 10,000 job losses, a study by the German Construction Industry Federation (HDB) said on Tuesday.

The sector is being dragged down by weakness in residential construction, with sales expected to shrivel by 12% in real terms, while public construction works will also perform worse than expected, the study said.

It adds to a broadly bleak outlook for construction in Europe's largest economy, which has been hobbled by rising interest rates, higher inflation and economic stagnation.

"Another figure is particularly painful: in the employment forecast, we expect a reduction of 10,000 employees," HDB President Peter Huebner said, adding: "there can only be one solution: build, build, build."

According to the study, the only growth area will be commercial construction, with an increase in sales of 1.5%. The reason for this is major orders from Deutsche Bahn, electricity network operators and local transport. (Reporting by Klaus Lauer, writing by Matthias Williams, editing by Andrey Sychev)