German market split

The Half Year Report Form Germany's Hauptverband der Deutschen Bauindustrie (HDB) - the Federation of large German contractors - shows output in the country's construction industry increased by +5,2% in the first half of the year, compared to the same period in 2006.

The association said the mild weather at the start of the year was a contributing factor. Growth in the second quarter of the year was more subdued at +3,1%, but this was still higher than the same three-month period in 2006.

The industry's order intake over the first half of the year was also strong, at a nominal +8,2% higher than the start of 2006. However, the HDB said more than half this increase was attributed to rising costs in the industry. The HDB says that allowing for these price adjustments, the real growth was +3,0%.

Although the first half saw good growth, there was evidence of a slow-down in June. Industry revenues were down -3,8% compared to May, and incoming orders were down -2,7% on a nominal basis.

Split Industry

The HDB also highlighted the different fortunes of the residential and non-residential construction sectors. Describing non-residential construction as the "locomotive" of the industry, the HDB said output in this sector was +9,5% higher in the first quarter of this year. It also said the sector bucked the general trend in June, with output rising by +3,2% compared to May's output.

Order intakes suggest this strength will continue, with contractors booking +16,3% more work in the first half of 2007 compared to the same period last year. This growth seems to be accelerating, with +16,6% more orders being taken in June than May.

This was in sharp contrast to the residential sector, where activity was down -1% over the first half of the year. Although the first half saw an increase compared to Q1 2006, activity has fallen-off since and in June the sector saw output fall -13,9% lower than it was in May.

The sector's order intake was -4,1% lower in the first half of 2007, compared to the start of 2006. There was also a dramatic fall in the number of housing permits granted, with a -41,6% drop for January to May, compared to the first five months of 2006.

Publicly-funded construction also saw a decline in the first half of the year, with activity 0,7% lower compared to the first six months of the year. The value of orders taken was -6,8% lower.

The HDB says this was due to a fall in road building work, with activity -4,6% lower in the first half of the year, while the value of orders taken was -10,8% lower than the same period in 2006. It says one of the reasons for this is that the mild first quarter allowed work to be carried out quicker than expected, leading to a gap between orders and activity that could be damaging for the industry.