The decline in activity was steeper than in April but there looks to be some improvement in fortunes, led by a continued recovery in civil engineering activity. Homebuilding and commercial activity continues to stutter though but firms' expectations for the coming year improved markedly to turn positive for the first time since the start of 2022. HCOB notes that:
“Civil engineering is starting to shake off the slump. While we are not seeing actual growth just yet, the fact that the index has ticked up for two straight months is a good sign. The big infrastructure package from the federal government is still in the pipeline, but there is already more momentum behind ongoing projects. That is more than can be said for residential and commercial construction, which took another hit in May. With civil engineering making up about 14% of the sector’s value added, it is in a good spot to help pull things up, though it will not be able to do all the heavy lifting on its own.
“The upward trend in long-term German government bond yields since December last year is likely to have contributed to the sharper downturn in both residential and commercial construction in May. The interest rate cuts by the European Central Bank are primarily relevant for short-term financing and have therefore only helped the sector to a limited extent. In residential construction in particular, the sector has taken two steps forward and then one step back in recent months, which suggests that the outlook is for only a slow improvement. In commercial construction, no clear direction can be derived from developments over the past six months. The sharp decline in new orders indicates that an economic turnaround is not imminent in overall construction. This is also supported by the fact that input prices have increased for the third month in a row, increasing pressure on the profitability of construction firms.
“The mood has definitely improved. Not too long ago, things were looking pretty bleak, with the future activity index just a few points above the 2008 low. Fast forward to today, with a new federal government and an infrastructure plan in the works, and confidence is back to early 2022 levels. It will still take a bit before that optimism turns into real action on the ground. But if all goes well, 2026 could be the year when growth really kicks in, spreading from civil engineering into residential and commercial construction.”
This article was written by Justin Low at www.forexlive.com. Read More Details
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