- Prior 37.0
The misery continues for Germany’s construction sector to start the new year. January observed sustained declines in activity, new orders and employment. Looking at the details, housing activity remained the worst performer alongside a deeper downturn in commercial building projects. The only “positive” is that civil engineering activity fell at the slowest rate for four
months. HCOB notes that:
“Just when you think it cannot get any worse, it can. According to the PMI, the German construction sector is extending and
deepening its downturn which has been in place since April 2022 for another month, with no near end in sight. The driver of
this downturn remains the housing sector, which is in a much more depressive state than commercial real estate and civil
engineering. Adding to the woes, the rising reports of insolvencies in the commercial real estate sector suggest that the
bottom in this segment has not been reached.
“An eye-catching development is the hefty increase in supplier delivery times. While the corresponding time series is rather
volatile, the sudden fall of the index below 50 – indicating longer delivery times – does not fit with the dire demand situation.
We link this movement to the problems commercial vessels are encountering in the Red Sea. In an effort to avoid drone or
rocket attacks from Houthi rebels, most vessels are taking the detour through the Cape of Good Hope, which prolongs the
voyage by at least seven days. Strikes at the German railway company may also have contributed to the longer supply
delivery times. This shift aligns with a slight uptick in input price inflation, posing an additional burden for the construction
sector.
“The outlook for new orders remains bleak, with the subindicator showing minimal improvement while remaining firmly
entrenched in recessionary territory. Faced with these challenges, firms have curtailed their material purchases at a pace
almost as fast as in the previous month. Although at a slower pace, companies continue to reduce their staff. However, the
slowdown in job cuts is unlikely to signify a turning point given the persistently weak order situation.
“For optimists, the set of PMI construction indicators may resemble a desert, offering limited signs of hope. While there is
some solace in the reduced number of companies expecting output deterioration in the coming year, it’s important to
acknowledge that there were still three times as many pessimists as there were optimists. In the same vein, the
subcontractor usage indicator is increasing from rock bottom levels. Having said this, given the perspective that interest
rates will most probably be cut eventually this year, some investors may be able to breathe a bit easier.”