Construction: business situation continues to weaken

According to the results of the ifo Business Survey, the business climate indicator for construction fell for the fourth time in succession in February. Although participants are somewhat more optimistic about the outlook, they were again more cautious about their current business situation. After the strong improvement in the business climate since July last year, the situation has calmed down noticeably, so that the business climate value is now roughly at the also very high level of the first quarter of 2018. Order reserves increased to an average of 4.2 months, exceeding the previous year’s figure by 0.3 months. At the same time, the equipment utilization rate has risen again to 78.3% following the visible decline in January. Apart from a few outliers, the equipment utilization rate has been at least 78% since March 2017. In view of the extensive construction demand and the difficulties in recruiting workers, it seems reasonable that the utilization rate will remain close to the previous record level (81.5%). As this is a nationwide survey, information from companies that are often not “working to the limit” outside the booming regions is also taken into account. Therefore, utilization rates of 100% or just below are quite unlikely. Around 70% of the companies surveyed reported constraints to construction activity: 56% complained of unfavorable weather conditions and 12% of labor and order shortages, respectively. According to survey responses, contractors were able to increase prices somewhat more frequently than recently. However, price expectations for the coming months have clouded over again. Many companies expect a further increase in the number of employees.