Key Findings:

  • Total Activity Index falls to eight-month low of 46.0
  • New orders show deepening decline
  • Cost pressures remain elevated amid severe supply disruption

Construction activity across Germany slumped at the start of the second quarter as businesses across the sector reported a combination of falling demand and severe supplyside pressures, latest PMI® data showed. Activity fell for the first time in four months, with firms noting the steepest decline in new orders for two years. The situation was compounded by another sharp rise in the cost of building materials and products amid widespread shortages and surging commodity prices.

The headline S&P Global Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – fell sharply in April, down from March’s 50.9 to 46.0. That signalled a drop in activity for the first time in four months, with rate of contraction the fastest since last August.

There were decreases in activity across all three broad construction categories monitored by the survey. Work on residential construction projects fell for the second month running and to the greatest extent since February 2021. The steepest decline was seen in commercial activity, which, like civil engineering, recorded its first contraction so far this year.

Reports from surveyed businesses highlighted delays on construction projects partly due to material shortages. Alongside this, April saw a sustained decline in demand for building work, linked to elevated prices and increased caution among customers. New orders fell for the second month running and at the quickest rate since April 2020.

The severe pressure on construction supply chains was underscored by a further marked lengthening of lead times on building materials and products, with the incidence of delays remaining among the highest on record. Constructors noted particular difficulty sourcing steel and insulation.

With demand-supply imbalances being compounded by soaring energy and transportation costs, April saw a further steep rise in construction input prices. The overall rate of cost inflation ticked down slightly since March but remained among the quickest in the history of the survey.

The Exporting from the UK section of the Construct UK Directory includes
– International Construction Exhibitions – UK Government Support for Exhibiting Overseas – Identifying Suitable Markets – Agent or Distributor – International Project Lead Sources

German constructors recorded a decrease in their purchasing activity at the start of the second quarter. Buying levels fell only marginally overall, however, and far less steeply than both output and new orders as some businesses sought to build up buffer stocks to mitigate against longer lead times on materials and future price rises.

One area where constructors made more notable cutbacks was employment. Staffing levels at building companies fell to the greatest extent for nearly two years, marking an abrupt turnaround from the strong job creation seen throughout the opening quarter of the year. Firms also reported a considerable drop in their use of subcontractors, although a continued dearth of availability continued to push up subcontractor rates at an unprecedented pace.

Turning to the outlook, German constructors signalled increased pessimism towards prospects for activity over the coming year. Expectations were at their lowest since the initial COVID shutdowns in the spring of 2020, weighed down by concerns over acute price pressures, material shortages and greater caution among clients owing to the uncertain economic environment. 

Phil Smith, Economics Associate Director at S&P Global, said, “Construction activity in Germany has started to buckle under the pressure from supply bottlenecks, sharply rising prices and economic uncertainty, all of which have been compounded by the war in Ukraine and contributed to a considerable drop in demand for building work at the start of the second quarter.

“Latest PMI data showed activity levels falling across each of the main areas of construction in April, led by a steep downturn in work on commercial projects. With the survey indicating the steepest fall in construction new orders for two years, the outlook for activity, at least in the near-term, looks bleak.

“Indeed, constructors’ expectations have slumped to their lowest since the initial COVID-19 shutdowns in the spring of 2020, reflecting concerns over headwinds to both supply and demand.

“Rising costs are posing a serious challenge to constructors, who are torn between trying to protect margins by passing on some of the burden and not pricing out their clients.”

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