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Fri February 26 2021

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Fall in German construction output slows

9 Oct 14 Overall construction activity in Germany stabilised in September, marking an end to the recent downturn.

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Despite a stabilisation in activity, new construction orders continued to fall sharply. German contractors reported a further drop in new business, extending the current sequence of decline to 30 months. The rate of contraction eased to the weakest in seven months, but remained sharp overall.

A slight rise in commercial activity was offset by declines in housing and civil engineering activity.

The Germany construction Purchasing Managers’ Index (PMI) is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago. The figure rose from August’s 47.7 to 50.0 in September, signalling a stabilisation in total construction output in Germany. The latest reading marked an end to a five-month period of contracting activity.

Work on residential building projects declined in September, having slightly increased in the previous two months. However, the pace of contraction was only marginal overall. A sharp drop was e reported for civil engineering, where activity fell for a sixth successive month. The rate of decline was sharp and broadly in line with the trend observed in the previous two months.

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With new orders falling, companies reduced their workforce numbers further. The rate of job shedding was broadly unchanged since August and modest overall. Meanwhile, German construction companies continued to lower their purchasing activity in September, although at a much weaker rate than seen in August. Nevertheless, the current period of contraction now stretches to six months.

The latest survey data signalled a sharp drop in sentiment towards the business outlook, with nearly 23% of survey respondents expecting activity to fall over the coming 12 months. Companies commented on a weak residential building sector and uncertainty related to geopolitical conflicts.

Oliver Kolodseike, economist at Markit, said: “Germany’s construction sector stabilised in September, following a five-month spell of contraction. However, out of the three broad categories of construction activity, only commercial activity rose, while work on residential and civil engineering projects fell since the previous month.

“The combination of falling employment and lower purchasing activity furthermore suggests that there might still be a few obstacles on the way to any sustainable recovery in Germany’s construction sector.”

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