4th October 2024

Key findings:

Further sharp, albeit slower, fall in total industry activity
Rate of job shedding quickens
Input costs continue to fall

Total industry activity continued to fall sharply across the German construction sector in September, albeit with the rate of contraction easing to the slowest in 16 months, according to the latest HCOB PMI® data. The sector’s ongoing troubles were underlined by an accelerated decline in new orders and greater pessimism among building firms towards the year-ahead outlook for output. The rate of job shedding also gathered pace.

Positively, from the point of view of constructors at least, costs continued to fall at the end of the third quarter. Alongside a drop in average prices paid for building materials, September saw the steepest decrease in subcontractor rates for nearly 12 years.

The HCOB Germany Construction PMI Total Activity Index – a seasonally adjusted index tracking changes in total industry activity – rose for the fourth time in the past five months in September, signalling a further easing of the rate of decline in total industry activity. The latest reading of 41.7 was up from August’s 38.9 and the highest since May 2023, although it remained well below the 50.0 no-change threshold and thereby indicative of a still-marked rate of contraction.

Latest data showed softer declines in both housing and commercial activity, albeit with the former still the worst performing of the three broad construction categories monitored by the survey. Civil engineering went against the trend and recorded a slightly quicker reduction in activity, although its rate of contraction remained the slowest overall.

September saw a marked and accelerated drop in new orders across the German construction sector. Panel member reports highlighted a range of factors weighing on demand, including market uncertainty, tight financial conditions and high costs.

The lack of incoming new work led building companies to reduce workforce numbers during September, continuing the trend seen throughout the past two-and-a-half years. Furthermore, the rate of staff shedding accelerated to the quickest seen since December last year and showed a marked overall decrease in employment.

German constructors also made deeper cuts to purchasing activity, which exhibited the sharpest decline for three months and contributed to a further improvement in delivery times. Weakness in demand for inputs, combined with lower fuel and commodity prices, resulted in a sixth straight monthly decrease in average purchasing costs. The rate of decline quickened slightly to the fastest since October last year, although it was still only moderate overall.

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

There was also further downward pressure on rates charged by subcontractors amid a further notable improvement in their availability, both of which were linked to constructors contracting out less work. The decline in rates charged was in fact the steepest seen since November 2012.

Lastly, September’s 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. On the flip side, this has contributed to a drop in construction costs. In fact, purchase prices have been falling for six months now. If this trend continues, many building projects that have been cancelled or delayed due to high costs could still get the green light. This would also be helped by the European Central Bank’s apparent shift to a path of lowering interest rates.”

For further details, click here.

The Construct UK Sales & Marketing Directory hosts over 75 articles, 1,000 construction events and 30 different databases for download. The annual £195 (+VAT) subscription fee provides unlimited access to all resources on the site.

Keep up to date with the latest construction marketing news by registering for our regular free construction sales and marketing e-bulletin here.

Follow us on Twitter