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Thu May 06 2021

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Cost pressures increase in German construction

6 Oct 17 Rates charged by German subcontractors at the fastest pace that has been recorded.

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Latest figures from the Purchasing Managers’ Index (PMI) from IHS Markit show a rate higher than any since the survey began in 1999. Input costs have also increased, showing the rate rise since March 2011. Moreover, vendor performance deteriorated markedly. Lead times lengthened to the second-greatest extent since December 2006.

German construction firms signalled further growth in overall activity in September at a solid pace of expansion, albeit the softest in eight months. Adjusted for seasonal factors, the headline PMI – which is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago – registered 53.4 in September, down from 54.9 in August.

Similarly, new orders increased at a slightly slower rate in September. In line with sustained growth in activity, staffing levels rose at a marked pace that was the fastest since February 2016.

Subcontractor usage continued to rise in September, despite the pace of growth easing to a five-month low. In line with this, subcontractor availability fell further and at the fastest rate since November 2006. Construction firms reported that subcontractor charge inflation reached a series high, driven by squeezed availability.

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The expansion was supported by upturns in all three monitored sub-sectors, although momentum in each eased from August. Both commercial and civil engineering saw a solid increase in output levels, with the former signalling the strongest subsector expansion. Housing activity rose at a moderate rate that was the softest in 13 months.

Business confidence was subdued in September, with optimism the lowest in ten months. Although panellists linked positive sentiment to higher new orders and strong client demand, uncertainty was linked to concerns about the longer-term demand outlook.

IHS Markit economist Sian Jones said: “Despite activity increasing across all three construction sub-sectors, firms reported the lowest level of business confidence in ten months. Some survey respondents stated that subdued optimism was due to concerns regarding the longevity of the current demand trend.”

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