4th March 2021

Key Findings:

Total Industry Activity Index sinks to 41.0
Civil engineering activity shows the steepest decline
Cost pressures continue to build

German construction activity fell sharply in February as severe bad weather caused widespread disruption to work on sites, latest PMI® survey data from IHS Markit showed. At the same time, building companies faced growing pressure on margins from rising input costs, stemming partly from bottlenecks in supply chains.

Looking ahead, constructors retained a negative outlook for activity over the next 12 months, citing concerns over squeezed client budgets. That said, expectations were the least pessimistic since the start of the coronavirus disease 2019 (COVID-19) pandemic.

The headline seasonally adjusted IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry output – came in at 41.0 in February. This was down from 46.6 in January and the lowest since May last year. Where a decrease in activity was recorded, this was overwhelmingly linked to unusually bad weather.

The impact was seen across all broad categories of construction. Housing activity fell markedly, ending a seven month sequence of growth. Work on commercial building projects meanwhile contracted at the quickest rate since last September. But the worst performance was seen in civil engineering activity, which, after showing signs of nearing stabilisation in the previous two months, recorded a sharp and accelerated contraction that was the fastest since June last year and among the steepest on record (since late-1999).

The freezing conditions also contributed to a marked reduction in intakes of new work at constructors in February. Having coincided with already-weakened demand due to the pandemic’s impact on client budgets and decision-making, it led to the steepest drop in new orders for four months. There were renewed setbacks for both employment and purchasing activity among German constructors in February. This followed tentative recoveries on these fronts in recent months.

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Although constructors reduced their purchases of building materials and products, supplier lead times continued to lengthen amid the weather-related disruption and strong demand for raw materials from outside the construction industry. The deterioration in delivery times was the greatest since March last year.

Average prices paid for inputs by constructors rose steeply in February, with the rate of inflation the fastest for over three years. Higher steel prices were often mentioned, with energy costs another key driver.

Phil Smith, Associate Director at IHS Markit, which compiles the survey, said, “Severe bad weather caused widespread disruption to work on building sites in February, with the impact seen across all areas of construction activity monitored by the survey.

“Bad weather is transitory, but constructors are expecting the effects of the pandemic on client budgets and spending to be more long-lasting. While constructors’ expectations for the year-ahead outlook are the least pessimistic during pandemic so far, with demand in the housing sector seen as a positive going forward, many remained concerned about a potential lack of tender opportunities, particularly around local infrastructure projects.

“Like in manufacturing, supply chain pressures have continued to increase across the construction sector and are among the most intense on record, with high demand for materials, logistical issues and other delays related to COVID all contributing to longer lead times in February. The strain on supply chains has created further problems by way of a sharp rise in the costs for building materials and products, with the rate of purchase price inflation now at its highest for more than three years.”

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