HCOB Germany Construction PMI®: Sector Remains Deep in Recession in November

Key findings:

• Housing leads broad-based fall in activity
• Sustained sharp downturn in new orders
• Fresh record improvement in subcontractor availability

Germany’s construction sector remained deep in recession midway through the final quarter of the year, according to the latest HCOB PMI® survey compiled by S&P Global. Activity fell sharply across all segments of construction, led by a rapid decline in work on housing projects. Accordingly, there were further layoffs during the month and another steep drop in demand for building materials and products.

On the cost front, subcontractors’ rates showed a deepening decline amid back-to-back record improvements in their availability. Input costs also fell, albeit with the rate of decline easing notably for a second month running.

The HCOB Germany Construction PMI Total Activity Index – a seasonally adjusted index tracking changes in total industry activity – moved further into sub-50 contraction territory in November, registering 36.2 from October’s 38.3. The index was at its lowest for just over three-and-a-half years.

Among the three broad construction categories monitored by the survey, housing activity remained by far the worst performing. Here, the rate of decline was broadly unchanged from the previous month and remained one of the fastest seen in the series history since 1999. Elsewhere, rates of contraction gathered pace. The latest drop in commercial building activity was the most marked since February 2021, while civil engineering activity fell to the greatest extent since January.

Demand conditions across the construction sector remained highly unfavourable. This was highlighted by a sustained steep downturn in new orders in November, with the rate of decline little-changed from October’s recent record. Where a reduction was registered, surveyed firms commented on the influence of elevated interest rates, high construction costs and weakness in the broader economy.

German constructors remained firmly in retrenchment mode as a result. November saw builders’ purchasing activity fall at the fastest rate since February 2010, while workforce numbers were cut for a twentieth straight month. The pace at which employment fell remained sharp despite easing slightly from the previous month, with a similar trend also observed for subcontractor usage. There was a record improvement in the availability of subcontractors for a second consecutive month, which was in turn reflected in the steepest drop in rates charged since November 2012.

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Average prices paid for building materials and products also fell during the penultimate month of the year, continuing a run of decline stretching back May. The rate at which purchasing costs decreased eased further from September’s recent record, however, and was the weakest in the aforementioned sequence.

Falling demand for construction inputs meanwhile eased the strain on supply chains and led to shorter lead times. Furthermore, the improvement in vendor performance was the most marked for four months.

Lastly, November’s survey showed that constructors’ expectations towards future activity remained historically low, and they even fell slightly since October. Firms voiced concerns about elevated costs, high interest rates and political uncertainty.

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said, “The building sector in Germany is experiencing a perilous plunge, with commercial building activity and civil engineering witnessing an escalated fall in November. The housing segment, leading the descent with a rapid decline, persists in cutting construction activity at a relentlessly depressive pace.

“The new order figures offer no respite, tumbling at a similarly dramatic rate as in October. Thus, a recovery remains elusive. The bombshell judgment from the German Constitutional Court, threatening substantial cuts in public investment and subsidies for the building sector, exacerbates the gloom. However, a glimmer of optimism might emerge with the apparent halt in interest rate hikes by the European Central Bank, offering a potential softening of pessimism in the future.

“In the gloom of the construction sector, one might anticipate significant room for price cuts to stimulate demand. Yet, the reality is sobering. Input prices went down for the seventh consecutive month. However, the cuts became much softer in November. The actual price level of building materials continues to be elevated, with many of them still showing prices between 30% and 70% higher than in the pre-COVID year of 2019, according to official statistics. This sentiment is echoed in the survey, where participants highlight the persistent burden of increased construction costs.

“Securing sub-contractors in the building sector is currently a breeze, but this newfound ease carries a bitter undertone. It stems from the sector’s overall depressive state, with sub-contractors enduring both weaker demand and a decline in pay rates for the second consecutive month.”

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