S&P Global Germany Construction PMI: February PMI Points to Shallower Decline in Total Industry Activity

Key Findings:

• Total Activity Index jumps to 11-month high of 48.6
• New orders continued to fall, albeit at a slower rate
• Input cost inflation slides to 27-month low

Latest PMI® data from S&P Global showed the rate of decline in German construction activity ease in February. A lack of incoming new work remained a feature of the survey, although the rate of contraction did at least ease and businesses were less pessimistic about the year-ahead outlook. Cost pressures across the sector meanwhile continued to soften from the ultra-high levels seen over the past two years, amid reports of easing supply-chain constraints.

The headline S&P Global Germany Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – remained in sub-50 contraction territory in February but climbed steeply from January’s 43.3 to 48.6. This signalled a notably slower rate of decline in activity, with the headline index recording its highest reading in the current sequence of contraction stretching back to April last year.

A rise in civil engineering activity, the first for almost a year, was recorded in February, alongside a slower decline in housing activity. The latter was nevertheless the worstperforming of the three broad construction categories, recording a comparatively faster decline than that of commercial activity, which went against the wider trend and saw its rate of contraction accelerate slightly compared to January.

Falling intakes of new work continued to act as a drag on total industry activity during February. New orders once again decreased markedly, as surveyed businesses commented on the influence of soaring prices for construction work, tightening financial conditions and general hesitancy among customers due to the uncertain economic outlook. The decline in new orders did at least slow for a third straight month, however, to signal the softest rate of contraction since March last year.

Building companies maintained a negative outlook for the year ahead, with far more firms expecting a decrease in activity (36%) than those anticipating a rise (10%). That said, firms were the least pessimistic for almost a year, as sentiment continued to recover from last October’s near-record low.

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Lower total industry activity led German constructors to further reduce their buying levels midway through the opening quarter. The rate of decline even picked up slightly and was the quickest for three months. The fall in demand for building products and materials in turn helped to ease pressure on supply chains, with firms noting the lowest incidence of delivery delays for nearly two-and-a-half years in February.

The easing of supply-demand imbalances was further underscored by a cooling of the rate of purchase price inflation faced by German manufacturers. Input costs showed the slowest increase since November 2020, with the rate of inflation falling below its long-run average since 1999. Rates charged by subcontractors continued to rise steeply by historical standards, though even here the pace of increase was the slowest for two years.

Lastly, February’s survey showed a reduction in construction sector personnel. Staffing numbers at building companies were down for an eleventh successive month, while subcontractor usage also fell. That said, the rates of decline eased to the weakest for three and 11 months respectively. 

Phil Smith, Economics Associate Director at S&P Global Market Intelligence, said, “February’s PMI showed the German construction sector take a step towards stabilisation, with the decline in total industry activity easing to only a modest pace that was the weakest in the current 11-month sequence of contraction. Underlying data showed a more positive month for civil engineering, albeit with the rise in activity coming off the back of a sharp downturn in prior months.

“Demand for building work remains strained by elevated prices and tightening financing conditions, although it’s encouraging to see that the rate of decline in new orders has at least slowed and that firms are now far less pessimistic about the outlook than they were just a few months ago.

“Easing cost pressures were a key feature of the latest survey data, with building firms having faced ultra-high rates of input price inflation over the past two years. Latest data showed construction sector costs rising at the slowest rate since November 2020, and one that was even slightly lower than the pre-pandemic series average, amid indications from the survey of reduced supply-demand imbalances.”

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