Key Findings:

  • Activity falls at fastest rate for three months
  • 90% of constructors report longer lead-times on building materials
  • Cost pressures reach new record high, depressing business expectations

Germany’s construction sector faced increased disruption from supply chain bottlenecks in May, latest PMI® data from IHS Markit showed. Activity fell at the fastest rate for three months, amid unprecedented reports of longer lead-times on building materials and products, as well as a sustained downturn in inflows of new work.

Widespread shortages of construction inputs meanwhile led to a sharp increase in purchase prices, with the rate of inflation at a new record high. Concerns towards the prospect of forced downtime on site and a threat to demand from price increases saw constructors’ expectations for future activity turn more pessimistic.

The headline IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry output – registered 44.5 in May. That was down from 46.2 in April and its lowest since February, when the sector was impacted by a bout of severe wintry weather.

Detailed data showed marked decreases in activity across both the commercial and civil engineering categories, with the latter the main drag on total industry output in May. Housing activity continued to show a more resilient trend but was unable avoid a further contraction.

Several constructors reported taking on less new work in May, linked to raw material shortages and general capacity constraints. The survey also continued to highlight some reluctance to spend among clients. Overall, new orders fell at solid pace that was the fastest for three months.

The proportion of German building companies reporting longer lead-times on inputs stood at 90% in May, up from a previous record of 76% in April (which was already far higher than ever before in the series history since 1999). Delays were linked to widespread shortages across supply chains, with surveyed firms noting a particular dearth of insulation, steel and timber.

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Accordingly, May saw a further increase in cost inflationary pressures, with input prices rising at a record rate for the second month running (albeit accelerating only slightly since April). Purchasing activity among constructors meanwhile displayed a renewed decline after rising for the first time in three months in April, with difficulties sourcing materials highlighted as a factor.

Constructors’ expectations for activity over the next 12 months turned more pessimistic in May, taking them to the lowest overall for five months. Anecdotal evidence pointed to growing concerns about supply chain bottlenecks and associated prices increases, which added to more established worries regarding the outlook for investment spending in the aftermath of the pandemic.

Lower activity levels were reflected in a further decrease in employment at constructors in May. The result marked a fourth straight monthly decline in staffing levels, albeit with the rate of job shedding remaining only modest. Sub-contractor usage also declined, although their rates continued to rise due to deteriorating availability. 

Commenting on the latest survey results, Phil Smith, Economics Associate Director at IHS Markit, said, “While manufacturing has long been showing strong growth and services is starting to revive again, the construction sector, by contrast, remains in the slow lane, with its performance in May the weakest since the snow disruption in February.

“Concerns among constructors have transitioned from the pandemic’s impact on clients’ willingness and ability to spend to now being dominated by worries about material shortages and an associated spike in costs. Supply disruptions threaten to constrain demand for new building projects as well as current activity on site.

“The numbers of businesses reporting delays across supply chains and rising costs are staggeringly high compared to what’s been seen in the past two decades, and the impact is being felt across the board, in activity, new orders, employment and purchasing activity.”

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