4th December 2020

Key Findings:

Headline PMI remains in contraction territory at 45.6
Slower falls in new orders, employment and buying levels
Constructors least pessimistic towards future output since start of COVID-19 pandemic

Latest PMI® survey data from IHS Markit showed Germany’s construction sector still mired in a downturn, with November seeing further declines in activity, new orders and employment. Rates of contraction eased, however, and firms’ expectations towards activity over the next 12 months were the least pessimistic since the start of the coronavirus disease 2019 (COVID-19) crisis.

At 45.6, the headline seasonally adjusted IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry output – was below the 50.0 no-change threshold for the ninth month in a row in November. That said, the latest reading was up slightly from October’s 45.2 and the highest since August.

Housing activity remained the sector’s bright spot, with work on residential projects increasing for the fifth month in a row in November, and at a slightly faster rate. This contrasted with ongoing weakness in both commercial and civil engineering activity, with these two categories exhibiting similarly steep rates of decline.

The downturn in new orders at German constructors – evident since March – extended into the year’s penultimate month. Surveyed firms reported a reluctance to spend among clients, often linked to the uncertainty caused by the pandemic, alongside fewer public sector tender opportunities. However, though remaining considerable by historical standards, the rate of decline eased to the weakest in the current nine-month sequence of contraction.

Latest data also showed slower declines in employment and constructors’ purchasing activity in November. Workforce numbers fell at a modest pace that was the joint-weakest since the decline began back in March. Buying levels meanwhile decreased only marginally, dropping to the smallest extent since August.

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Despite constructors cutting back on purchases of building materials and products, supply chain pressures persisted, with November seeing a further increase in average lead times on inputs. This ongoing tightness in supply chains resulted in a further rise in average purchase prices. The rate of inflation ticked up to an eight-month high, although it remained well below the series average. It was a similar picture for sub-contractor charges, which rose at the quickest rate since March, but one that was mild by historical standards.

Lastly, the latest survey data showed that, while still worried about the prospect of a lack of investment due to the impact of the pandemic, constructors were less pessimistic towards future activity than at any point in the previous eight months.

Phil Smith, Associate Director at IHS Markit, which compiles the survey, said, “After back-to-back contractions in the second and third quarters, German construction activity still looks to be stuck in a downturn as we approach the end of the year, according to these latest PMI results. The construction sector’s performance continues to be undermined by a general softness in demand for building work caused by the pandemic, though some encouragement can be gleaned from the fact the decline in new orders did at least show signs of easing in November.

“It’s notable that, unlike their counterparts in manufacturing and services, German construction companies are still downbeat about activity next year. The survey’s anecdotal evidence suggests that building firms are particularly gloomy about the outlook for commercial activity owing to the structural changes to office working, for example, that have been accelerated by COVID-19. That said, constructors’ expectations have recovered some ground from a near-record low back in the spring and are now higher than at any point since the pandemic began.”

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