Construction: Business Climate Index Falls Noticeably

According to the results of the ifo Business Survey, the business climate in construction deteriorated noticeably at the beginning of the year, even though the indicator clearly remains in positive territory. The participating companies assessed their current business situation considerably less favourably than in December. The business expectations for the next six months slipped into negative territory for the first time since April 2016 – albeit only slightly. However, in view of the continuingly strong demand for housing in many regions and the impressive official figures for incoming orders recorded in November – especially in civil engineering – a significant economic slowdown in construction is not to be expected in the short term. It should be noted, however, that construction prices have risen markedly in recent quarters. In road construction, price increases recently reached a level of more than 7%. This should be kept in mind when interpreting the still high nominal growth in sales and order volumes in the official statistics. The equipment utilisation rate polled by the ifo Institute fell noticeably in January from 79.6% to 75.6%; such sharp declines have been observed time and again in the first quarters of past years and were limited to individual months. Of the surveyed contractors, 58% reported constraints in construction activity (January 2018: 44%). 43% complained of adverse weather conditions. There were also constraints in construction output due to a lack of orders (11%) and labour shortages (9%). Order backlogs remained constant at 4.1 months, exceeding the previous year’s figure of 3.9 months. Despite the considerable deterioration in the business climate, there was little change with regard to price and employment expectations. Many survey participants continue to expect price increases in the coming months, with prices having been raised as frequently in the previous month as in November. Companies also plan to increase their staff levels to nearly the same extent as in December.