Key Findings:

  • Broad-based fall in construction activity, led by residential sector
  • Cost and supply pressures ease
  • Expectations towards year-ahead outlook remain deeply pessimistic

Construction work across Germany showed a marked rate of decline in November, led by shrinking housing activity, latest PMI® data from S&P Global showed. Firms were deeply pessimistic about the outlook for the year ahead, amid a backdrop of high inflation, rising borrowing costs and reluctance among customers. Expectations picked up slightly, however, in line with signs of a partial easing of supply and price pressures.

The headline S&P Global Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-onmonth changes in total industry activity – remained in sub-50 contraction territory for an eighth straight month in November, registering 41.5. This was down from October’s 43.8 and the lowest since February 2021.

All three broad construction categories monitored by the survey recorded lower activity in November. The steepest decline was in the residential segment, where activity fell sharply and to the greatest extent since February 2012. The downturn in civil engineering activity likewise deepened midway through the fourth quarter, with the rate of contraction reaching the fastest since February 2021. Only commercial activity went against the broader trend, recording the slowest decline for eight months.

Falling demand for construction work remained a prominent feature of the survey data in November. According to reports from surveyed businesses, the sector was reeling from the effects of high prices, rising interest rates and hesitancy among customers. Underscoring the weakness in demand was a sharp and accelerated drop in new orders received by building companies, the rate of contraction of which quickened since October and was the second-fastest seen in over two-and-a-half years.

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

Lower activity and diminishing inflows of new work led German construction companies to scale back their workforce numbers during November, the eighth month in a row in which this has been the case. Back-to-back moderations in the rate of job shedding, however, meant that employment fell only modestly during the latest survey period.

Constructors’ purchasing activity, on the other hand, fell at a faster rate in November. The decline in buying levels was sharpest since February 2021. Lower demand for building materials and products in turn alleviated some of the pressure on construction supply chains. The was highlighted by a drop in the incidence of input delivery delays to the lowest since September 2020.

The rate of input price inflation remained elevated in November, with surveyed firms commenting on the influence of high energy costs and rising factory gate charges set by manufacturers. That said, in line with easing supplychain pressures, the overall rate of increase in input prices was the second-weakest 21 months. Rates charged by subcontractors also increased more slowly, driven in part by a further marked decrease in usage.

Looking ahead, the majority (51%) of German constructors expected a decrease in total activity levels over the next 12 months, reflecting an array of headwinds to demand. This compared with only 5% expecting a rise. The resulting index recorded one of its lowest readings in the series history (since 1999), although it did pick up from October’s recent nadir to the highest since August.

Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said, “The current economic environment of high prices, rising interest rates and weak sentiment is weighing heavily on the construction sector’s performance. The downturn in new orders, which started in March following Russia’s invasion of Ukraine, extended into November and showed little signs of easing.

“Housing activity is being hit hardest by the various headwinds to demand, registering a rate of contraction in November that was the quickest since April 2009 if brief weather-related downturns are excluded. Work on civil engineering projects also fell sharply during the month, while commercial activity went against the grain and showed a steadier trend after its summer slump.

“Constructors maintained a very gloomy outlook for the next 12 months and, as such, pressed ahead with further cutbacks to workforce numbers during November, albeit at a slower rate than in each of the previous three months.

“Expectations came off October’s near-record low, however, helped in part by a slowdown in input price inflation and signs of easing supply bottlenecks.”

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