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Thu December 13 2018

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German construction growth picks up

6 Jun Growth in Germany’s construction activity picked up speed in May, with total activity showing the steepest increase in four months.

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The sector continued to rebound from a weather-related downturn at the end of the first quarter. New orders increased and construction companies continued to raise employment in order to expand capacity.

However, the pace of job creation was the lowest in 15 months and firms reported being less optimistic about the outlook.

The headline seasonally adjusted Germany Construction Purchasing Managers’ Index (PMI) – which measures changes in the level of total industry activity compared with one month ago – rose to a four-month high of 53.9 in May. The increase from April’s 50.9 signalled a pick-up in the rate of growth from the modest pace seen at the beginning of the second quarter to one that was solid and the second-quickest seen since August last year.

The upturn in activity was underpinned by improved trends in both the residential and commercial sectors, with each exhibiting the strongest rate of growth since the opening month of the year. Civil engineering remained in contraction, but the rate of decline eased for the second month in a row and was only marginal overall

Latest data meanwhile showed a renewed increase in the level of new orders at constructors in May, following a decline (only the second in 1.5 years) the month before. The rate of order book growth was only modest however, with capacity continuing to act as a restraining factor, according to anecdotal evidence.

Phil Smith, principal economist at IHS Markit, said: “The construction sector moved up a gear in May, swimming against a tide of slower growth across both manufacturing and services. Total industry activity exhibited the steepest rise in four months as building companies stepped up work on both housing and commercial building projects. The recent drag on growth from a downturn in civil engineering also eased, the sub-sector coming its closest to stabilisation since February.

High workloads led constructors to take on additional staff in May, resulting in a 35th straight monthly increase in employment in the sector. Although remaining solid, the rate of job creation eased to the lowest seen since February 2017 amid reports from surveyed firms of difficulties finding suitably skilled staff.

The more moderate rate of recruitment was also consistent with a waning of business confidence in May. Constructors remained strongly positive about the outlook, expecting activity to rise over the next 12 months. However, the degree of optimism was the lowest seen since January, having fallen for the first time in six months from a survey-record high in April.

Constructors reported the steepest increase in buying levels for four months in May, with strengthening demand for materials contributing to a further sharp increase in average purchase prices.

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