The downturn in Germany's construction sector continues with housing activity posting its sharpest fall in over 13 years. Business expectations also declined to a nine-month low as sentiment remains relatively poor. The only good news is that input costs fell further as the pressure on supply chains continue to ease on the month. HCOB notes that:
“In August, construction work kept on plummeting at a fast pace, primarily due to a sharp decline in house building. The dismal condition of this sector can be traced back to a blend of higher interest rates, real income erosion from inflation, and needless bureaucratic obstacles. It's not just that the government's goal of 400,000 residential units won't be achieved this year. It also seems like Germany will fall considerably short of the roughly 290,000 units that were constructed last year.
“Expectations among companies point to a much weaker activity level in twelve months’ time, which fits to the continued sharp decrease of new orders and the fact that material buying has been trimmed down more rapidly.
“The overall miserable environment is causing input prices to decline more rapidly. In the same vein, subcontractor rates have increased again at a softer rate, continuing a trend that has been underway since the middle of last year.
“The construction sector is scaling back its workforce at a less rapid rate than its overall activity. The reason could be the consistently tight labour market we've had so far which is now adjusting to a somewhat more equilibrated level.
“Civil engineering is a bright spot in the construction sector, as activity has increased in August. However, we shouldn't draw broad conclusions from a solitary number, as activity in this sector has a history of being quite erratic.”
