German Construction Downturn Continues in July

Kimberly Watson, Editor in Chief
August 07, 2012 /

The German construction sector continued to contract at the start of the third quarter. Moreover, the latest falls in output levels and new order intakes were the steepest in the current four-month downturn.

Job creation meanwhile slowed to only a marginal rate, with firms on balance pessimistic with regards to the 12-month outlook for activity.
Meanwhile, there was a slight rise in input price inflation from June’s 23-month low.

Output across the German construction sector fell for the fourth month running in July, and at the sharpest rate in that sequence. This was highlighted by the seasonally adjusted Germany Construction
Purchasing Managers’ Index® (PMI®) falling from June’s mark of 46.0 to 44.6.

Sharp rates of contraction were recorded across all three key categories of the construction industry monitored by PMI data. Declines in home-building and civil engineering activity were the most marked
since February, with the latter showing the greatest weakness of the sub-sectors overall.

Output levels fell in accordance with another drop in new orders placed with German constructors in July. As was the case with total activity, the latest decrease in new work was the fourth in successive months and the sharpest in the ongoing spell of decline. Reports from panel members signalled that clients had been reluctant to commit to new projects amid an uncertain economic outlook.

German constructors were generally downbeat about the prospects of output levels increasing over the coming year, and signalled concerns regarding the Eurozone debt crisis as well as the outlook for public spending. Furthermore, the degree of negative sentiment was the greatest since last December.

July saw job creation slow to a marginal rate, following a solid increase in employment levels in the sector during the previous month. The rise in staffing numbers, albeit only slight, was the seventeenth in the past 19 months.

Purchasing activity among constructors in Germany stagnated during July. Despite no signs of extra pressure on suppliers, their lead-times continued to lengthen. The rate of decline in vendor performance was nonetheless the weakest since for five months.

After slowing in June to the weakest for almost two years, input price inflation crept up slightly during the latest survey period.

Inputs reported as up in price included energy and steel. That said, the overall rate of inflation remained below the historical trend.

Finally, July data showed a drop in sub-contractor usage, and a corresponding improvement in their availability – the sharpest for almost two-and-a-half years. Rates charged by sub-contractors meanwhile fell for the first time since September 2009, though the quality of their work was adjudged to have deteriorate at survey-record pace.

 

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