German growth slows, UK falls

Construction growth in Germany has slowed, while the UK has seen the first drop in new orders since April 2013, according to figures from the Markit PSI (Purchasing Managers’ Index) for the two countries.

The Markit Germany Construction Index – based on data from a panel of more than 200 companies – reported that construction companies in the country had reported ongoing growth of both output and new orders during May 2016, although rates of expansion had slowed in both cases.

Average lead times on inputs had lengthened markedly, it found, and input costs rose at the fastest pace in ten months.

Latest survey data signalled a further increase in German construction output midway through the second quarter, which panellists linked to a combination of new business and the processing of outstanding work.

However, the pace of expansion slowed for the third month running and was the weakest since last November.

It said this was highlighted by the seasonally-adjusted PMI – which is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago – falling from April’s 53.4 to 52.7.

Nonetheless, growth has been reported in each of the past 16 months, it said.

Residential

Housing activity rose further during the month, although the latest expansion was the least marked since last October. Nevertheless, the residential building sector retained its position as the star performer out of the three categories of construction activity covered by the survey.

Commercial building also continued to increase, but the rate of growth was more modest than that for housing activity.

Meanwhile, Markit reported that civil engineering activity had fallen for the first time in seven months, albeit only slightly overall.

German construction firms reported a sixth successive monthly rise in new business in May, which marked the longest period of continuous growth in the survey’s history, according to Markit. However, it said the pace of expansion had slowed since April and was fractional.

Difficult month in UK

In the UK, construction firms experienced another difficult month overall in May, according to the Markit/CIPS (Chartered Institute of Procurement & Supply) PMI, with output growth easing to its weakest for almost three years and incoming new work declining for the first time since April 2013.

Survey respondents were said to have noted a general slowdown in market conditions and delays to client decision making ahead of the UK’s EU referendum.

However, there were signs that construction companies remained relatively upbeat about the growth outlook, with more than half of the survey panel of more than 170 construction companies (51%) expecting a rise in output over the next 12 months and only one-in-seven (14%) forecasting a fall.

The seasonally-adjusted Markit/CIPS UK Construction PMI posted 51.2 in May, down from 52.0 in April and only slightly above the critical 50.0 no-change mark.

Markit said the latest figures signalled the weakest overall rise in business activity for almost three years. It said all three broad areas of construction activity had been stuck in a low gear during May.

Residential building work increased at one of the weakest rates seen since early-2013, while growth of commercial activity was the slowest for nearly three years. Civil engineering stagnated in May, it said, which made it the worst performing sub-category of activity for the second month running.

May data signalled an outright reduction in new order volumes for the first time since April 2013. It said anecdotal evidence pointed to a general lack of client confidence, driven by heightened uncertainty about the economic outlook. Moreover, a number of firms noted reluctance among clients to place orders and start contracts until after the EU referendum.

According to a special question added to the survey this month, around one-third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote.