IHS Markit Germany Construction PMI: Sector Sees Downturn in Activity Ease in March, But Cost Pressures Surge Higher

Key Findings:

Construction Sector Sees Downturn in Activity Ease in March, But Cost Pressures Surge Higher

• Total Industry Activity Index rises to 47.5
• Pandemic continues to hit order books
• Input price inflation reaches highest since July 2008

Latest PMI® data from IHS Markit showed the downturn in Germany’s construction sector easing in March. However, the surveyed also highlighted growing pressure on supply chains, with the lack of availability across a range of key building materials and products pushing up purchase prices to the greatest extent since mid-2008.

Adjusted for seasonality, the headline IHS Markit Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry output – remained in sub-50 contraction territory in March at 47.5. However, it was up sharply from 41.0 in February, when companies had widely reported disruption due to extreme wintry conditions. The latest reading was the second-highest since the start of the coronavirus disease 2019 (COVID-19) pandemic behind that seen last August.

Several firms reported continued bad weather during March, alongside delays caused by long wait times on planning permissions and a soft patch in demand. As such, there were further – albeit notably slower – declines in activity across each of the three broad construction categories monitored by the survey. Commercial activity recorded its shallowest decline for 13 months, though was still the worst-performing sub-sector narrowly behind civil engineering. Housing activity posted the slowest contraction.

Constructors once again reported fewer opportunities to tender during March, citing the pandemic’s impact on private and public sector budgets as well as continued caution towards investment. New orders were down for the thirteenth month in a row, albeit less steeply than in February.

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There were similar trends seen in employment and purchasing activity, both of which contracted for the second month but more slowly than in the previous survey period. Sub-contractor usage was also down on the month, but so was their availability, leading to a steep rise in average rates charged.

At the same time, constructors faced growing cost pressures from rising prices for inputs, including concrete, insulation, steel, timber and plastics. The rate of inflation was the fastest for more than 12-and-a-half years.

The survey highlighted that prices had risen largely due to demand exceeding supply. Input shortages in turn resulted in increased numbers of delivery delays, with March seeing one of the most marked deteriorations in vendor performance in the series history since 1999.

Finally, latest data showed an improvement in constructors’ expectations towards future activity to a 13-month high.

Phil Smith, Associate Director at IHS Markit, which compiles the survey, said, “Latest PMI data showed much steadier performances across each of the major segments of construction activity in March, following the widespread disruption caused by severe bad weather in February. However, reports from surveyed businesses indicated that the sector continued to be held back by a soft patch in new orders linked to the impact of the pandemic on clients’ willingness and ability to invest, with several firms also commenting on delays in planning permissions.

“The business climate is becoming more difficult due to the supply-side issues facing the industry, with shortages across a range of key building products and materials leading to near-record delays in the delivery of inputs. An imbalance of supply and demand pushed up purchase prices at the fastest rate in more than 12-and-a-half years.”

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