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Wed November 20 2019

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German construction activity falls at a faster pace

6 Sep Activity in Germany’s construction sector fell at the fastest rate for more than five years in August, with the downturn spreading to all broad categories of building work.

The headline seasonally adjusted IHS Markit Germany Construction Purchasing Managers’ Index (PMI) – a measure of month-on-month changes in total industry activity – sank to 46.3 in August, down from 49.5 in July and its lowest reading since June 2014.

The research showed the recent decline in new orders has been gathering pace, with worries about a sustained slowdown dragging firms' output expectations down to the lowest since late-2015.

The result also marked the first back-to-back declines in total construction activity for five years. For the first time since the snow-related disruption in March 2018, all three broad construction categories recorded a decrease in activity. The worst-performing remained civil engineering, where work fell for the fifth month in a row and at the quickest rate in almost one-and-a-half years. Data also showed a sharp drop in commercial activity, the most marked since March 2013, while work on housing projects returned to contraction after a brief rise in July, falling only modestly but the most nonetheless since May 2014.

Survey respondents highlighted a decrease in tender opportunities during August, particularly from the public sector. Accordingly, new orders fell for the fourth month in a row, with the rate of decline accelerating to the quickest since July 2014.

The sustained contraction in new work was reflected in growing concerns among constructors about the outlook for activity over the next 12 months. August saw expectations turn increasingly negative and sink to the lowest overall in almost four years.

However, employment trends continued to defy the broader downturn in August, with constructors continuing to create jobs, albeit at the slowest rate for ten months. Purchasing activity, by contrast, fell for just the second time in over four years. Lower demand for building materials and products saw supply chain pressures ease to the weakest in 4.5 years in August, with lead times lengthening only modestly on average.

Input cost inflation faced by German constructors slowed for the sixth time in the past seven months, reaching the lowest since August 2016. This contrasted with a marked and accelerated rise in rates charged by subcontractors, which the data showed was largely attributable to a lack of availability.

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