German construction activity returns to growth at end of 2025

• Germany December construction PMI 50.3
• Prior 45.2

That’s some positive news at least for the German economy, with the jump higher here driven by a further increase in civil engineering activity. Of note, activity in this segment registered its strongest rate of expansion since March 2011. Besides that, the drag on total activity
from the housing sector eased considerably as work on residential projects fell at the slowest rate since March 2022. And adding to that, employment conditions also ticked up for a second month in a row.

All that being said, this is just one reading. Firms’ expectations towards activity in the year ahead remained subdued and that will keep any optimism towards the outlook more limited for now.

HCOB notes that:

“The construction sector experienced a surprisingly positive end to last year. For the first time since March 2022, the total
activity index has moved into expansion territory. This is partly thanks to a sharp boost in civil engineering. But it also seems
that sentiment in the previously battered residential construction sector is starting to turn. We may be seeing signs that the
housing sector is emerging from a deep recession, with activity now only edging down slightly. To keep things in
perspective, this is just one monthly figure, and the time series has shown big swings before. Still, the sharp rise in building
permits recently reported by the Federal Statistical Office gives hope that this isn’t just a one-off.

“The strong acceleration in civil engineering activity suggests that the infrastructure measures announced by the federal
government are finally moving into the implementation phase. This applies especially to transport infrastructure – roads,
bridges, and rail. Growth hiccups are still possible in civil engineering in 2026, but as the year progresses, the growth path
should stabilize as more projects get underway. This trend will likely mean that resources from less busy construction
segments will increasingly be deployed in civil engineering. Notably, employment in the construction sector has been rising
again for two months, after the last expansion nearly four years ago.

“Building continues to get more expensive. Construction costs rose a bit more sharply in December than in the previous
month. Combined with relatively high long-term interest rates, which is a key factor, especially for residential construction,
this acts as a dampener. And given the ECB’s communication, short-term rates aren’t expected to fall anytime soon, which
doesn’t help either.”

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