Germany’s construction sector activity contracted at the slowest pace in 16 months in September, but remains deep in contraction territory survey results from S&P Global showed on Friday (Oct. 4).
The HCOB Germany Construction PMI Total Activity Index – a seasonally adjusted index tracking changes in total industry
activity- rose to 41.7 from 38.9 in the previous month. This was the highest since May 2023. However, the score remained below 50.0, indicating contraction.
Latest data showed softer declines in both housing and commercial activity, with the former still the worst performing of
the three broad construction categories monitored by the survey. Civil engineering recorded a slightly quicker reduction in activity, although its rate of contraction remained the slowest overall.
The survey also showed an accelerated fall in new orders across the German construction sector as market uncertainty, tight financial conditions and high costs weighed on demand.
The lack of incoming new work led building companies to reduce workforce numbers in September, continuing the trend
seen throughout the past two-and-a-half years.
Companies made deeper cuts to purchasing activity, which exhibited the sharpest fall in three months. Driven by weak demand for inputs, combined with lower fuel and commodity prices, average purchasing costs posted another fall.
There was also further downward pressure on rates charged by subcontractors amid a further notable improvement in their
availability. The decline in rates charged was in fact the steepest seen since November 2012.
Lastly, the survey indicated a deterioration in business expectations across the German construction sector.
Sentiment towards activity in the year ahead worsened considerably since August and was the weakest in 2024 so far. Falling
new orders, the general health of economic conditions, and policy uncertainty were common concerns among businesses
Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
“The construction sector is starting to show some faint signs of life again, but we should not get carried away. The headline
index rose in September to its highest level since May of last year. That said, the sector is still shrinking – just not as quickly
as it has been over the previous 15 months. The uptick is largely due to impulses from residential and commercial
construction, while civil engineering has taken a bigger hit compared to the previous month. Overall, things still look pretty
bleak in the construction sector.
“Construction companies are still grappling with the fact that month after month, they are receiving fewer orders. This
drought has been dragging on for over two and a half years now. The only silver lining is that the drop in orders has not been
quite as steep as it was last year. Still, the data clearly shows that the recession in the construction industry will likely
continue for quite a while, and most companies seem to share this outlook. In fact, the index for future activity fell to a ninemonth low in September. A lot of companies say it is because of the weak order situation, the overall economy, and political uncertainty.
For subcontractors, the tough times are far from over. They are getting hit on two fronts: demand for their services is
shrinking and – unsurprisingly – they are having to offer discounts.”
