Activity growth in the German construction industry eased in January, but construction firms were still optimistic about the coming year. New orders, employment and purchasing activity all increased, albeit more slowly than in December. Cost pressures, however, continued to mount, with the rate of input price inflation hitting a 56t-month high.
Adjusted for seasonal factors, the headline Purchasing Manager’s Index (PMI) indicated a slowdown in output growth during January.
Despite overall slowdown, activity growth was still broad-based by category, with the steepest rise again seen in housebuilding, although the rate of expansion slowed. The next fastest growth was seen in civil engineering, which was the only sub-sector to see a quicker increase than December. Commercial activity on saw a marginal rise.
New business placed at German constructors rose for the third month running at the start of 2017. Even with some easing, the pace of growth was stronger than average since the start of 2016. The ongoing expansion in new work ensured that job creation was sustained in January, with the rate of hiring slowing from December’s four-month high, but still remaining solid overall.
PA similar trend was observed for purchasing activity, with the rate of expansion moderating since the previous month, but remaining robust overall.
Increased demand has put pressure on suppliers, with average lead times lengthened substantially in January. This stretches the current sequence of worsening vendor performance to 28 months.
Purchasing costs continued to rise sharply within the German construction sector, as the rate of inflation accelerated to the quickest on over four-and-a-half years.
Additionally, subcontractor rates increased significantly, albeit at a weaker pace than in the previous two months. The usages and availability of sub-contractors, meanwhile, fell simultaneously for the first time since August 2015.
Despite increased cost pressures and slower activity growth, optimism picked up in January, with the brightest outlook since the series began in 1999 being reported by German constructors./
Commenting on the PMI data, Philip Leake, Economist at IHS Markit said: “Growth of Germany’s construction sector cooled in January, with activity rising at the weakest pace in five months. While the slowdown is disappointing given the sector’s buoyant performance in December, it is little cause for concern. Growth remained broad-based across residential, commercial and civil engineering activity, driven by a third successive rise in new work. “Both employment and purchasing activity increased for the nineteenth straight month, suggesting that constructors anticipate further growth at least in the near-term. This view was strongly reinforced by the year-ahead outlook for activity, which improved to its best since the survey began in 1999. “Firms’ sentiment strengthened in spite of mounting cost pressures and a greater squeeze on margins. Purchase prices rose at the fastest rate in over four-and-a-half years.”
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