German Construction Sector Downturn Deepens

(RTTNews) - Germany's construction sector shrank further in August largely due to the steep fall in new orders, survey results from S&P Global showed on Thursday.

The HCOB construction Purchasing Managers' Index fell to 46.0 in August from July's 29-month high of 46.3.

A score below 50.0 indicates contraction and further below the critical threshold indicates the faster rate of contraction.

After registering growth for the first time in more than three years, commercial activity dropped sharply and to the greatest extent since March. On the other hand, work on infrastructure projects rose strongly. The decline in housing activity slowed to the weakest for two-and-a-half years.

The main factor that weighed on construction activity was the lack of new work. Weak demand partly reflected sluggish economic conditions and high costs in the construction sector.

Further, constructors were pessimistic about the year-ahead outlook for activity. Sentiment was the weakest for four months in August. Input price inflation slowed for the second month amid a steep decline in buying levels. Meanwhile, rates charged by subcontractors rose to the greatest extent for just over a year. Further, there were further signs of stabilization in construction workforce numbers. Employment logged a marginal fall which was the slowest since the current decline began in April 2022.

"Germany's construction sector is still struggling to gain traction," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said. "The cautious optimism seen a few months ago has given way to growing pessimism," de la Rubia added.

"The index tracking future activity has dropped significantly. Persistently high long-term interest rates and the perception that the new government is also having trouble turning its promises into actual legislation seem to be weighing on sentiment," the economist said.