German construction sector still in recession, civil engineering only bright spot

Investing.com -- The German construction sector remained in recession during September, with civil engineering being the only segment showing growth, according to the latest HCOB Germany Construction PMI data released Monday.

The HCOB Germany Construction PMI Total Activity Index registered 46.2 in September, slightly up from 46.0 in August but still below the 50.0 no-change threshold, indicating a continued downturn in overall building activity.

Civil engineering grew for the third time in four months, though the pace of growth was only modest and weaker than in the previous survey period. In contrast, the housing sector recorded a sharp rate of decline, the quickest in three months, while commercial building projects also decreased, though at a slower pace than in August.

New orders continued to decline steeply, albeit at the least marked rate in three months. Construction companies cited a lack of tender opportunities due to high building costs, tight budgets, and sluggish economic conditions.

Despite a slight improvement in business expectations for the year ahead, firms remained pessimistic about the outlook overall. The sector continued to shed jobs in September, with the rate of staff reduction re-accelerating slightly after slowing in August.

The data also showed accelerating inflation pressures, with input cost inflation reaching a three-month high and the steepest rise in subcontractor charges since July 2023.

"The construction sector remains in recession. The downturn in residential construction has even deepened, and the decline in commercial construction activity has only slowed slightly," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

"Civil engineering, the beacon of hope for the construction sector, which should benefit from the federal government’s announced infrastructure package, is still growing, but the momentum here has slowed significantly," he added.

Dr. de la Rubia noted that the "almost unabated decline in new orders signals that the dry spell will continue," while rising construction costs and relatively high long-term yields are making the environment for the construction sector "difficult" despite the ECB’s interest rate cuts.

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