German Construction Sector Continues To Contract

(RTTNews) - Germany's construction sector remained deep in the contraction zone in May on sharp falls in total industry activity and new orders, the latest HCOB survey compiled by S&P Global showed on Thursday.

The construction Purchasing Managers' Index posted 38.5 in May, up from 37.5 in April.

A reading below the threshold 50.0 indicates contraction. Nonetheless, this was the highest score in three months.

There were sustained downturns in each of the three broad construction categories. Housing activity remained the worst-performing area but the rate of fall in housing activity was the slowest in eight months.

Work on commercial building projects dropped at a marked pace that was unchanged from April. At the same time, civil engineering registered a deepening rate of decline.

The survey showed that new orders declined at a faster pace as customer demand continued to be hindered by high prices and financing costs.

Companies expect activity levels to decline over the coming year, citing shrinking pipelines of new work. Sentiment softened from a 12-month high.

Lower workloads and concerns about future activity forced companies to reduce workforce numbers. The sequence of job cuts continued since April 2022.

There was a sustained decline in the quantity of building materials and products bought by German builders.

Lower demand resulted in further downward pressure on input prices and faster deliveries of purchases. Input costs fell at a faster pace in April but remained moderate overall.

Moreover, the improvement in supplier delivery times was one of the greatest seen in the survey history.

"I'd like to say that there is light at the end of the tunnel. But there isn't," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said.

Although the European Central Bank is about to cut interest rates, expectations about future activity have worsened, suggesting that it is not all about interest rates, the economist noted. Instead, there is a combination of high building costs, including high regulatory burdens, a loss of purchasing power, and general uncertainty amid geopolitical threats, added de la Rubia.