Germany’s construction sector made a strong start to 2022, recording the fastest growth in activity in almost two years, latest PMI® data from IHS Markit showed. With new orders rising steeply in January, constructors upped the pace of job creation and reported stronger expectations towards the outlook.
Further encouragement was gleaned from a sustained slowdown in the rate of input cost inflation faced by constructors to a ten-month low. That said, price pressures remained elevated by historical standards, with supply-chain delays remaining prevalent despite also easing since the previous month.
The headline IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – rose to 54.4 in January, up sharply from 48.2 in December. The result pointed to the strongest growth since February 2020, and partly reflected less weather-related disruption than usual during the month, underlying data suggested.
The upturn in activity was broad-based by sector. Work on residential projects saw the sharpest increase by some margin, rising to the greatest extent since January 2018. Both commercial activity and civil engineering saw moderate rates of expansion, with the latter nevertheless recording its best performance in almost three years.
Inflows of new work likewise returned to growth at the turn of the year, ending the decline observed since March 2020. Furthermore, the extent to which new orders increased was the most marked for four years. Reports from surveyed businesses pointed to stronger demand in general, with a rise in new work in the housing sector a key source of growth.
Latest data signalled a fifth straight monthly increase in employment at German constructors. Continuing the trend observed throughout the final quarter of 2020, the rate of job creation accelerated, reaching its quickest since February 2020.
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At the same time, constructors reported a sharp rise in the use of subcontractors during the month. The increase in usage was the steepest seen in the series history (since September-1999) and coincided with a marked deterioration in availability. Rates charged by subcontractors rose accordingly.
Elsewhere on the cost front, constructors faced a further steep increase in average prices paid for building materials and products, linked to widespread imbalances between supply and demand. That said, having eased for the fifth time in the past six months (from a record high last July), the overall rate of input price inflation was the lowest since March 2021.
The sustained moderation in cost pressures was consistent with a further easing of supply bottlenecks in January. The incidence of longer lead times on inputs was the lowest since February 2021, although progress from the previous month was only slight and delays remained prevalent by historical standards.
Lastly, January’s survey indicated an improvement in constructors’ confidence towards the year-ahead outlook for activity. Expectations turned optimistic for only the second time in almost two years and were the highest overall since February 2020. Surveyed businesses reported greater confidence towards future demand for construction work, amid hopes of an easing of the pandemic. Elevated price pressures continued to weigh on expectations, however.
Commenting on the latest survey results, Phil Smith, Economics Associate Director at IHS Markit, said, “The Construction PMI pointed to a bright start to the year for the sector and completed an all-round better performance across the German economy in January following positive survey data on manufacturing and services.
“Given the degree of the upturn in activity, better-thanusual weather during the month was likely a factor, though a fifth straight monthly rise in employment and greater business confidence towards the outlook suggest that underlying fundamentals have improved of late.
“Elevated price pressures remained a concern for building companies, though even on this front there was some cause for optimism as the rate of input cost inflation retreated further from last July’s record high to a ten-month low.
“The headwinds to the sector from supply bottlenecks eased in January. The incidence of delays on building materials and products was the lowest since February 2021, although supply still has some way to go to catch up with demand.”
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