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Mon February 18 2019

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Bad weather slows German construction growth

7 Feb Severe bad weather in parts of Germany in January led to a slowing of growth in construction activity compared with the relatively mild December.

January saw the Germany Construction Purchasing Managers’ Index (PMI) – a measure of changes in total industry activity – slip to 50.7, down from 53.3 in December. It was lowest reading in the current three-month sequence of growth.

New order growth was robust but also eased, as did the rates of increase in employment and constructors' buying levels.

Despite the slowdown, constructors remained confident about the prospect of activity rising in the next 12 months.

On the cost front, constructors faced steep and accelerated rises in both subcontractor rates and average purchase prices, with the latter reportedly driven up by increased energy costs and road toll charges.

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The slowdown was led by a renewed decline in commercial activity, which fell to the greatest extent in almost six years following modest growth in November and December. In addition, housing activity increased at a much slower rate than in December. Civil engineering was the only area of construction that began the year on a stronger footing, recording a rise in activity for the first time in three months.

Phil Smith, principal economist at IHS Markit, which compiles the survey said: "After a solid end to 2018, the German construction sector lost some momentum in January, with the PMI data signalling softer growth across a number of key business metrics.

However, while December was unusually mild, the opposite was true of January. The fact that growth in total industry activity slowed down more than new orders, which remained comparatively robust, suggests that it wasn't necessarily a demand-driven slowdown and that severe bad weather probably did cause some disruption to actual work on the ground during the opening month of the year.

"Trying to unravel these distortions is difficult, but if we look at three-month moving averages to try to smooth fluctuations caused by any potential weather effects, then we see that the trend rates of growth for total activity, new orders and employment have all improved, albeit remaining below the highs in 2018. Alongside a rise in business confidence, this paints a fairly positive picture."

MPU

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