German construction companies reported a sustained reduction in activity in June as demand for building work was weakened by a combination of heightened economic uncertainty, rising building costs and higher interest rates, latest PMI® data showed. Supply chains remained stretched, whilst the rate of input price inflation was historically elevated, although pressures did ease somewhat on both fronts. Expectations for activity in the coming year remained pessimistic.
The headline S&P Global Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-onmonth changes in total industry activity – registered 45.9 in June, up slightly from May’s nine-month low of 45.4 but still firmly below the 50.0 threshold that separates growth from contraction. With April having also seen lower activity, the sector’s performance during the second quarter was its weakest since Q1 2021.
Each of the three broad construction categories monitored by the survey recorded declines in activity in June. Civil engineering was the worst-performing segment for the second survey running, closely followed by commercial activity. Work on residential projects posted a comparatively shallower downturn, but one that was still notable. In each case, the rates of contraction barely eased since May.
The construction sector’s poor performance throughout the second quarter has largely reflected a softening of demand for building projects. Inflows of new orders were down for the fourth month in a row in June, and, whilst easing to the weakest since March, the pace of decline remained marked overall. Surveyed businesses highlighted a growing hesitancy amongst customers, which they attributed to increased economic uncertainty, the high cost of building work and rising interest rates.
These factors, combined with concerns about continued supply chain issues and high inflation generally, meant that constructors maintained a negative outlook towards activity in the coming year. Expectations remained strongly pessimistic, albeit slightly less so than in May.
The Exporting from the UK section of the Construct UK Directory includes
– International Construction Exhibitions – UK Government Support for Exhibiting Overseas – Identifying Suitable Markets – Agent or Distributor – International Project Lead Sources
Material shortages continued to lead to delays in the receipt of purchases. Although the extent to which supplier performance deteriorated in June was the least marked for four months, it was still substantial overall and sufficient to lead some businesses to raise their purchasing activity to build up buffer stocks and mitigate against longer lead times.
Reflecting this, constructors’ buying levels fell only slightly in June and at a much slower rate than actual activity, as was the case throughout the second quarter. Employment and subcontractor usage meanwhile decreased more notably and for the third month in a row, although the rates of decline were the weakest in their respective sequences.
June data indicated still-elevated cost pressures across the German construction sector. The rate of input price inflation remained firmly above its historical series average, although it did ease notably since May to a five-month low. Rates charged by subcontractors continued to rise at a nearrecord pace, due in part to an ongoing lack of availability.
Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said, “Another sub-50 reading for the headline Construction PMI in June points to the sector having contracted in the second quarter. After an especially strong start to the year, it was always going to be difficult for the construction sector to maintain that momentum. But its situation was made worse by the outbreak of the war in Ukraine, which has been a major headwind to demand and dampened activity even further. Firms report hesitancy among customers due to rising building costs in particular, but also higher prices generally, with an uncertain economic outlook and now rising interest rates further weakening the appetite for investment.
“Indeed, constructors’ expectations for activity in the coming year remain rooted in negative territory, with far more firms expecting a decline in the level of work than those predicting a rise.
“It very much remains a sellers’ market across construction supply chains, although June’s survey did provide further evidence of some pressures starting to alleviate, as reports of delays in the delivery of materials eased and the rate of input cost inflation slowed notably to a five-month low.”
For further details, click here.
The Construct UK Sales & Marketing Directory hosts over 75 articles, 1,000 construction events and 30 different databases for download. The annual £195 (+VAT) subscription fee provides unlimited access to all resources on the site.
Keep up to date with the latest construction marketing news by registering for our regular free construction sales and marketing e-bulletin here.
Follow us on Twitter