Key findings:
- Activity falls at weakest rate for three months as decline in orders slows
- Softer decreases in employment and purchasing activity
- Cost pressures remain elevated
Germany’s construction sector remained in contraction in June, according to the latest S&P Global PMI® survey, albeit with the latest data showing slower rates of decline in total activity, new orders and employment. At the same time, firms were slightly less pessimistic about the outlook for activity.
Supply-side conditions meanwhile remained challenging as firms reported elevated cost pressures alongside longer lead times on purchases. Reports of delays did however ease since May.
The S&P Global Germany Construction PMI Total Activity Index is a seasonally adjusted index based on a single question asking about month-on-month changes in total industry activity. A reading below 50.0 signals contraction, and the further below 50.0 the faster the rate of contraction signalled.
At 44.8, the headline index was still firmly in sub-50 contraction territory in June. That said, it was up from 42.4 the month before and posted the highest reading since March.
As was the case in May, activity fell in each of the three broad categories of construction activity monitored by the survey at the end of the second quarter. Housing remained the worst-performing segment, recording a steep rate of contraction that was unchanged from the previous month. Commercial activity fell at the weakest rate for 11 months, its pace of contraction easing for the second month running and slowing sharply compared to that seen in May. Work on civil engineering projects meanwhile decreased for the second month running, but only modestly as the pace of decline softened.
Lower activity was generally linked by surveyed firms to a lack of incoming new work. The latest survey results continued to highlight downward pressure on demand across the construction sector, which panellists attributed in part to high prices. The rate of contraction in new orders eased notably since May to the weakest so far this year, however.
Employment remained in decline during June as firms responded to the subdued demand environment, marking a fifth straight monthly decrease in construction workforce numbers. But like both activity and new orders, staffing levels fell at a slower rate, registering their weakest decline in three months. It was a similar story for firms’ purchasing activity, which dropped at a much softer pace than the month before (though one that was still solid).
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As for costs, German constructors noted a sustained sharp rate of inflation in prices paid for building materials and products. June saw the pace of increase tick down further from April’s peak, but it remained among the highest recorded over the past three-and-a-half years and well above that seen immediately before the outbreak of the Middle East conflict.
German building companies meanwhile recorded longer lead times on purchases, with the Middle East war and product shortages highlighted as factors. Reports of delays did however ease noticeably since May to the lowest for three months.
Lastly, June’s survey results indicated a slight improvement in constructors’ expectations for activity in the coming year for the second month in a row. Nevertheless, sentiment remained pessimistic, as firms voiced concerns over high prices, tight customer budgets and subdued market confidence.
Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said, “Conditions have steadied somewhat across the construction sector, with June seeing the rates of decline in both total industry activity and new orders ease for the second month in a row. Nevertheless, parts of the construction sector remain firmly in contraction territory, particularly housing activity, owing to a backdrop of high prices, tighter financing conditions and heightened levels of uncertainty. Civil engineering activity is faring better than other areas but still lacks dynamism.
“Whilst cost inflation looks to have peaked, having ticked down a little further from April’s high in line with a softening of global oil prices, it remains elevated and continues act as a notable headwind to the sector’s performance. Constructors are less downbeat about the outlook than they were a month ago, but a marked easing of cost pressures is likely a prerequisite for a return to optimism in the sector.”
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