The HCOB Germany Construction PMI rose sharply to 45.1 in April 2025 from 40.3 in the prior month, marking the highest reading since early 2023 and signaling a notable easing in the pace of decline across the sector.
German construction downturn eases in April
While the figure still indicated contraction, it was the softest in nearly two years, pointing to early signs that the prolonged downturn in Germany’s construction industry may be starting to bottom out. All three key subsectors—housing, commercial, and civil engineering—saw slower rates of decline, with anecdotal evidence suggesting some stabilization in client sentiment and a gradual adaptation to tighter financial conditions.
Most notably, the drop in new orders decelerated significantly, with the demand index jumping to its strongest level since early 2022. While developers and contractors continued to cite elevated construction costs and macroeconomic uncertainty as deterrents to new business, the rebound in sentiment hinted at growing interest in restarting shelved projects, particularly in the public infrastructure space following recent regional funding announcements.
Business expectations remain positive
Business expectations, though slightly down from March’s 37-month peak, remained positive, with a large share of survey respondents anticipating a pickup in workloads over the next year. This optimism was underpinned by improving supply chain conditions—material delivery times shortened for the 13th time in the past 14 months—alongside speculation that interest rates may have peaked, offering relief for both clients and developers reliant on financing.
Despite the uptick in activity indicators, employment levels continued to fall, with job shedding reaccelerating in April after a temporary moderation in March. Firms cited cautious hiring practices due to still-uncertain project pipelines and cost management priorities. Nevertheless, the pace of decline in purchasing activity and subcontractor usage eased further, suggesting a more measured approach to downsizing compared to previous quarters.
Input price inflation accelerates
On the cost front, input price inflation climbed to a 14-month high, driven by increases in energy-related materials and transport costs. However, the uptick was not seen as alarming, remaining well below the levels seen during the peak inflationary pressures of 2022. Firms generally maintained pricing discipline, wary of passing on higher costs to already price-sensitive clients.
Overall, while the German construction sector remained in contraction, April's data showed growing signs of resilience, fueled by improving supply chains, stronger demand signals, and moderate optimism for a rebound in the second half of 2025. The extent of recovery, however, will likely depend on broader economic stabilization and the trajectory of interest rates and public sector investment.
