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Tue April 13 2021

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Germany sees continued decline in new construction contracts

7 Aug 15 Germany's construction output increased slightly in July but new orders continued to decline.

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German construction companies noted a second successive drop in new business in July, according to the latest analysis by Markit. The pace of contraction quickened slightly since June and was the fastest since January.  With new orders falling further, there was little appetite for companies to raise their purchasing activity.

July data signalled a continuation of marginal output growth at German constructors, as highlighted by the seasonally adjusted Purchasing Managers’ Index (PMI). The posted headline figure was 50.6, little-changed from June’s 50.7.

Activity has now risen for six months in a row, but the latest expansion was the weakest in this sequence. A rise in housing activity contrasted with a decrease in civil engineering.

Oliver Kolodseike, economist at Markit, said: “Construction output in Germany continued to grow at a snail’s pace in July. The data highlighted that the sector is becoming more and more dependent on work on residential building projects, as civil engineering activity continued to decline at a marked pace and commercial building activity stagnated. The outlook remains lacklustre too, with optimism towards the 12-month outlook dropping to a six-month low, suppliers increasingly struggling to deliver on time and input costs rising at a rate not seen since May 2012.”

The latest expansion in construction output was centred around the residential building sector, where activity rose for a tenth month running. The rate at which housing activity increased was little-changed from June. 

Meanwhile, the survey data highlighted that commercial activity broadly stagnated in July, following five months of growth, while civil engineering activity declined further. The rate of contraction was stronger than that seen in June. 

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German construction companies noted a second successive drop in new business in July.

Staffing levels returned to growth and input costs rose at the strongest rate since May 2012, while average lead times from suppliers increased markedly.

The quantity of materials purchased by German constructers was unchanged since the previous month.  Meanwhile, employment levels in Germany’s building sector rose during July, following a slight decline in June. The rate of job creation was the strongest in three months. 

Cost pressures in Germany’s construction sector intensified in July, with the rate of inflation the highest in more than three years. Anecdotal evidence suggested that increased energy prices and a shortage of certain construction materials had pushed inflation higher during the month.  Suppliers’ delivery times lengthened for the tenth consecutive month in July, with the rate at which vendor performance deteriorated the most marked  since October 2011.

When asked to comment on the increase in average lead times, some panellists mentioned a shortage of some raw materials.  Optimism towards the 12-month outlook for activity meanwhile fell to a six-month low. Nevertheless, companies expect output to increase over the course of the next year.

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