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Wed April 01 2020

House-building boosts German construction output

6 Dec 19 Germany’s construction activity has risen at the fastest rate since April, boosted by work in the housing sector.

The upturn in housing activity contrasted with a deepening decline in commercial work, though civil engineering sub-sector’s drag on overall construction output continues to ease as work fell only marginally.

The latest IHS Markit Germany Construction Purchasing Managers’ Index (PMI) data showed construction work in Germany rising at the fastest rate for seven months in November. There was also a renewed increase in inflows of new orders during the month, which in turn contributed to an acceleration in job creation. However, the downturn in commercial activity deepened, while firms' expectations for building work in a year's time remained subdued.

The headline PMI figure – a measure of month-on-month changes in total industry activity – registered 52.5 in November, up from October's 51.5 and its highest reading since April. The index has now risen in each of the past three months to signal a sustained rebound following August's recent low.

As in previous months, the rise in overall construction activity in November was driven by house-building, which recorded its steepest increase since April. The drag on overall activity from civil engineering eased, as work in this sub-category fell only marginally and at the slowest rate in the current eight-month sequence of decrease.

Commercial was the worst-performing construction sub-sector in November, having seen its rate of decline quicken for the second month in a row. The drop in commercial activity was the second-fastest since March 2013.

IHS Markit principal economist Phil Smith said: "Latest PMI data paint a healthier picture of the German construction sector as we move through the final quarter of the year. However, in reality, homebuilding remains the only area of real strength, buoyed by pent-up demand for housing, favourable borrowing conditions and rising property prices.

“Both commercial and civil engineering activity remain weak, albeit with the drag from work on infrastructure projects gradually fading. By contrast, commercial activity is still in the doldrums, reflecting a hesitancy among businesses to invest amid the soft and somewhat uncertain economic outlook.”

Amid reports of greater opportunities to tender, constructors recorded a rise in new orders for the first time in seven months in November. This pickup in demand was reflected in an acceleration in the rate of job creation across the building sector to the fastest since April, as well as a renewed increase in the use of subcontractors. Nevertheless, the pace of employment growth was still below the average over the current sequence of increase that began in July 2015.

"Expectations among building companies are subdued, and even those hopeful of more work see their optimism stifled by skill shortages,” added Smith. “Still, the trend in new orders has improved, which will hopefully give the construction sector a lift as we head into year-end.”

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