German Construction Sector Sentiment Sinks Amid Material Shortages

Germany’s construction sector morale eroded sharply in April as an increasing number of firms face supply shortages due to the war in Ukraine, survey data from the ifo institute showed Thursday.

The share of building construction companies reporting material shortages rose to 54.2 percent in April from 37.2 percent in the previous month.

In civil engineering, the proportion climbed to 46.2 percent from 31.5 percent.

“These are all-time highs since the start of the time series in 1991,” ifo researcher Felix Leiss said.

The business expectations index for building construction sank to minus 46.9 points, once again the lowest level since 1991. In civil engineering, the reading fell to minus 48.6 points.

“Russia and Ukraine are major suppliers of structural steel, of which there is now a shortage,” Leiss said.

As the production of many building materials is also very energy-intensive, the recent sharp price increases for energy could derail domestic production and raise the cost of building materials further, the ifo researcher added.

German producer price inflation accelerated to a record high 30.9 percent in March, driven by soaring energy prices, official data showed last week.

Developers are also concerned about the prospect of higher interest rates that would increase the cost of financing. Consequently, more orders are being canceled, the survey found.

Among building construction companies, 7.5 percent reported order cancellations in April versus 4.6 percent in the previous month. The share of civil engineering firms reporting cancellations climbed to 9.3 percent from 3.9 percent in March.

The latest S&P Global purchasing managers’ survey for the German construction sector revealed a sharp slowdown in activity growth in March, led by residential construction, as demand was damped by the war in Ukraine, rising prices as well as supply shortages.

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