Rise in housing activity lifts German construction output

The improved performance was further supported by greater inflows of new business, which grew at the strongest rate for 11 months. As a result, there were faster increases in both employment and constructors' purchasing activity, according to the latest Germany Construction Purchasing Managers’ Index (PMI).

The headline PMI figure was 53.3, up from November's 51.3. Driving this was a robust and accelerated increase in the level of housing activity, which rose at the fastest pace since last May. Growth in commercial activity moderated slightly and was only modest overall, while work on civil engineering projects decreased for the second month running, albeit to a smaller extent than in November.

“The end of 2018 saw a broad-based upturn across the German construction sector, with PMI data showing stronger growth in output, new orders and employment,” said Phil Smith, principal Economist at IHS Markit, which compiles the survey. “Evidence from the survey hinted that milder than usual weather across some areas had a positive influence on activity. In addition to temporary factors, the underlying trend in demand was already a positive one, with December marking the third month in a row that new order growth has accelerated.

"In terms of work on the ground, the upswing in activity in December was primarily driven by greater work on housing projects, which rose the most since last May. Owing in large part to an especially strong out-turn in the first quarter, commercial activity was 2018's strongest performing category of construction despite growth tailing off slightly in the final month of the year. Though still acting as a drag on the total level of output, civil engineering activity had its best quarter for over a year in Q4."

Employment rose at the fastest rate for eight months, with the pace of job creation recovering further from the near two-and-a-half-year low seen in October. Concurrently, there was a renewed increase in constructors' use of subcontractors following the slight decreases seen in October and November. The brighter picture also extended to constructors' purchasing activity, which showed the steepest rise for four months in December.

The latest survey showed a softening of capacity pressures across the sector. The incidence of input delivery delays was the lowest since last May, while the extent to which subcontractor availability deteriorated was the least marked for almost two-and-a-half years.

Constructors continued to face sharply rising costs in December. Although easing from November's 13-month high, the rate of input price inflation remained among the strongest seen over the past seven years, linked to higher energy and transport costs. The pace of increase in subcontractor rates meanwhile remained at its highest since last May.

December's survey indicated that constructors remained only mildly optimistic about the outlook for activity. Business confidence rebounded further from October's near three-year low, though the degree of positive sentiment remained much weaker than earlier in 2018.

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