While overall business activity picked up in March, it belies the underlying mood in the sector as input cost inflation posts a record rise on the month. The pick up is helped by an improved mood in housing activity, posting its shallowest decline so far this year. In turn, that makes commercial activity the weakest-performing segment in March.

That being said, the latest survey showed a sharp deterioration in constructors’ expectations for activity over the coming year. And that comes after having hit a six-year high in February. Of note, panellists reported concerns about demand and steep cost increases. That isn’t a surprise considering the latest Middle East developments.

On the latter, the rate of input price inflation faced by German construction companies rose sharply in March, recording its most marked one-month jump in the series history. This took it to its highest level since October 2022 and well above its long-run average. Trouble, trouble.

HCOB notes that:

“Whilst there were signs of improvement on the activity front in March, with housing work showing a much slower rate of decline and civil engineering enjoying stronger growth, several of the survey’s other indicators flashed warning signals about the sector’s prospects in the coming months. For a start, inflows of new orders continued falling at an accelerating rate, with existing headwinds to demand from economic uncertainty and already-high price levels being exacerbated by the outbreak of war in the Middle East.

“The construction sector has followed manufacturing in seeing a record month-on-month rise in its input prices index, underscoring the immediate spike in cost pressures that’s rippled through the economy from the Middle East war.

“The dual concerns over weaker demand and sharply rising prices have hit business confidence and put paid to the green shoots of optimism seen at the start of the year.”

This article was written by Justin Low at investinglive.com.