IHS Markit Germany Construction PMI: Sector Records its Best Performance for Two Years in February

Key Findings:

• Total Activity Index climbs to two-year high of 54.9
• Pace of job creation accelerates
• Expectations fall as costs and supply chain pressures intensify

February saw a sustained upturn in construction activity across Germany, with the sector recording its strongest performance for two years, latest PMI® data from IHS Markit showed. With intakes of new work also rising, capacity expansion efforts led to a marked and accelerated increase in employment.

Less positively, latest data showed an uptick in the rate of input cost inflation faced by German building companies for the first time in four months, driven in part by a worsening of supply bottlenecks. This was reflected in a drop in business expectations for the coming year.

The headline IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – climbed further above the neutral 50.0 threshold in February, registering 54.9 from January’s 54.4. The latest reading marked the sector’s strongest growth performance for two years.

There were notable increases in activity across each of the three broad construction categories monitored by the survey. Growth was led by the commercial segment, which recorded its sharpest rise in activity for over four years. It was followed closely by civil engineering, the rate of expansion of which picked up to the quickest since July 2017. In a reversal of the situation the month before, housing activity was the laggard in February, its rate of growth having slowed notably.

The upturn in activity was supported by a second straight monthly increase in inflows of new orders at German constructors. Although the rate of growth eased since January, it remained solid by historical standards.

At the same time, the survey indicated a continued increase in employment across the construction sector, as building companies sought to expand capacity to deal with rising workloads. Furthermore, the pace of job creation accelerated to a two-year high.

Constructors also increased their use of subcontractors during the month. There was a dearth of availability, however, which helped drive an unprecedented rise in rates charged.

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The construction sector faced an intensification of cost pressures in February. After slowing in each of the previous three months, the rate of input price inflation climbed back up to its highest since last November. Surveyed businesses reported paying more for a range of building materials and products, including bricks, insulation, timber and a range of metals, alongside higher energy prices.

February’s survey showed an increase in the incidence of supply delays, the first time this has been the case for nine months. Surveyed businesses commented on a lack of available materials as well as COVID-related disruption to supply chains. A sharp rise in constructors’ purchasing activity – the steepest in over three-and-ahalf years – added further strain on already-stretched supply.

Concerns over rising prices weighed on constructors’ confidence in February. More firms expected a decrease in activity over the next 12 months than those expecting a rise. This contrasted with the situation in January, when expectations had been positive for the first time in ten months and the highest overall for almost two years. The RussiaUkraine tensions were also highlighted as a threat to the outlook.

Commenting on the latest survey results, Phil Smith, Economics Associate Director at IHS Markit, said, “The construction sector has enjoyed a strong opening quarter so far, with the latest PMI survey pointing to the best performance for two years in February.

“Unlike in January, when growth was firmly centred on the residential sector, the latest increase in activity was more evenly balanced across each of the main construction segments as work on both commercial and civil engineering projects picked up sharply.

“Constructors have stepped up their efforts to expand capacity in recent months, which is reflected in the fastest increase in employment for two years in February. But at the same time, builders are being hit head-on by rising costs, including an unprecedented increase in subcontractor rates and a renewed upturn in input price inflation.

“The outlook for the construction sector has darkened, with the optimism seen in January proving to be short-lived. Concerns have grown around the outlook for inflation and supply chains, while the conflict in Ukraine also threatens to weigh on confidence and therefore demand for new construction projects.”

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