HCOB Germany Construction PMI®: Sector Ends 2023 Deep in Contraction Territory Amid Substantial Loss of New Work

Key findings:

• Total Activity Index ticks up only slightly from 36.2 to 37.0
• Constructors cut employment as concerns for the outlook remain
• Renewed rise in input costs

German construction activity remained in decline as 2023 drew to a close, with the sector continuing to be buffeted by a combination of market uncertainty and high interest rates, according to the latest HCOB PMI® survey compiled by S&P Global. Building companies were still firmly in retrenchment mode, registering further notable reductions in both employment and purchasing activity. The survey meanwhile pointed to a bleak outlook for 2024, with business expectations remaining historically low.

Notably, constructors reported a first – albeit modest – rise in input prices for eight months. Subcontractor rates, on the other hand, continued to fall, reflecting a further marked improvement in their availability.

The HCOB Germany Construction PMI Total Activity Index – a seasonally adjusted index tracking changes in total industry activity – registered 37.0 in December, up slightly from November’s 36.2. Despite the rise in the index, the latest reading was still the second-lowest in a little over three-and-a-half years and indicative of a steep rate of contraction.

As was the case throughout almost all of 2023, housing activity was the main drag on the construction sector during December. Here, the rate of contraction eased slightly, but it was still one of the quickest on record. By contrast, the declines in both commercial and civil engineering activity gathered pace, reaching the fastest for 34 and 11 months, respectively.

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A lack of incoming new work was behind the sustained downturn in activity. Reports from surveyed businesses indicated greater caution among customers amid a backdrop of economic and political uncertainty and high interest rates. The rate of decline in new orders eased only slightly since November, meaning it was still among the quickest in the series history going back to 1999.

Constructors were highly sceptical about the outlook for activity in 2024. Year-ahead expectations were broadly unchanged from the month before and historically low, with over half of businesses (56%) anticipating a decrease in activity in the forthcoming year.

Lower workloads led construction companies to scale back both their staffing numbers and purchasing activity during December. In both cases, the rates of decline were the slowest for three months but still sharp by historical standards.

Weaker demand for building materials and products was in turn reflected in a tenth straight monthly improvement in supplier delivery times at the end of the fourth quarter. Although the least marked since last April, the rate of improvement in vendor performance was still considerable overall.

December meanwhile saw a renewed rise in average input costs faced by German constructors, thereby ending a seven-month sequence of decline. Panellists commented on the influence of an increase in road tolls. This contrasted with a third straight monthly fall in subcontractor rates amid a near-record drop in usage by constructors.

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