The German construction PMI records 44.7 in January, significantly lower from the 50.3 print in December last year. The fall marks a solid drop in activity, which follows the first growth in almost four years in the month before. As such, that's a major setback to the hopeful showing in December.
A further decrease in new orders was observed in January as accelerated downturns in both housing and commercial activity weighed on overall activity. That offset the sustained growth in civil engineering activity, even if cooling slightly after the strong showing in the month before.
HCOB notes that:
“This is a very rocky start to the new year for the residential and commercial construction sectors. Residential construction has experienced a veritable crash in January after the situation appeared to have stabilised in December. Commercial construction also saw an accelerated, albeit somewhat less dramatic, decline. As a result, activity in the construction sector as a whole declined significantly and would have been even worse if the strong growth in the civil engineering sector had not continued. The unusual chilly weather could perhaps be blamed for it, but overall the survey results are not encouraging.
“The sharp rise in natural gas and oil prices in January is likely to have contributed to higher construction costs during the month and to another sharp rise in subcontractor prices. As the higher natural gas and oil prices are likely to be largely attributable to the cold weather conditions, the pressure on the cost side should normalize again in the coming months. However, attention must also be paid to industrial metals, which have also risen relatively sharply recently.
“Growth in civil engineering, which primarily benefits from government contracts for infrastructure projects, is becoming entrenched. For the third month in a row, an expansion in activity can be observed here. As demand for labour will remain high on this side – employment in the construction sector has risen again – it is unlikely to become any easier for building construction to reduce construction costs. This makes a recovery in residential and commercial construction more difficult.”
