German Construction PMI Signals Further Downturn In May

Germany’s construction activity showed a further downfall in May as demand was dampened amid rising price pressures, material shortages and uncertainty among clients, survey results from S&P Global showed on Tuesday.

The construction Purchasing Managers’ Index fell to a nine-month low of 45.4 in May from 46.0 in April. Any reading below 50 suggests contraction in the sector.

Among the three monitored categories, civil engineering activity recorded the sharpest rate of decline and work on residential building projects fell at the quickest pace since February 2021. Meanwhile, commercial activity contracted at a slightly slower rate, though still marked overall.

New orders fell for the third straight month in May on rising price pressures and higher borrowing rates along with growing caution among clients due to an uncertain economic outlook.

Input price inflation remained strong in May as construction firms continued to face cost burdens for materials and products. The latest rise in inflation was closer to last year’s survey record highs.

As a result, product delivery delays remained historically high in May despite easing from the previous two months.

Construction companies reduced their employment and use of subcontractors as a result of lower activity and demand.

“Constructors are expecting these challenging conditions to persist in the coming year, leading to the gloomiest forecasts for future activity since the first wave of the pandemic more than two years ago, ” Phil Smith, economics associate director at S&P Global Market Intelligence, said.

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