Personal Finance

'Sick man of Europe' Germany and Eurozone neighbours being 'tipped into recession'

The health of construction sector continued to worsen during October, according to recent research, adding fuel to the growing concerns that analysts have about the country “tipping into a ”.

According to the latest HCOB PMI survey compiled by S&P Global, firms in the sector recorded deepening declines in both total activity and employment amid rapidly weakening demand.

The HCOB Germany Construction PMI Total Activity Index, which is a seasonally adjusted indicator monitoring overall industry activity, remained on a downward trajectory at the start of the fourth quarter.

At 38.3 in October, down from 39.3 in September, the index recorded its lowest reading for three and a half years.

The ongoing decline in total activity was primarily driven by the housing sector. German construction companies reported one of the sharpest rates of decrease in residential project work in the series’ history since 1999.

Commenting on the PMI data, Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “Things continue to go from bad to worse in Germany’s construction sector. The housing sector is the epicentre of the downturn, nosediving at a breakneck speed.

“Meanwhile, civil engineering and commercial building activity are stuck in a similar rut as last month. As a result, the total industry activity index for construction has plummeted even further below 40.

“It looks like construction companies are not finding much solace in the thought that interest rates might be peaking. The Future Activity Index is sounding the alarm for a big downturn in the next year, even though it’s up slightly from last month.

“While there are indeed some downside risks, overall, we would expect to have left the bottom behind us in 12 months from now.”

This coincides with S&P Global’s wider survey, encompassing thousands of private sector companies in Germany, the UK, France, Italy, Spain, Netherlands, Austria, Greece, Ireland, Poland, and the Czech Republic.

The survey showed general demand weakness in manufacturing and services firms continued to weigh on output across European sectors last month. As per the report, only “Software and services” and “Other financials” recorded growth that month.

Commenting on the data, Julian Jessop, economics fellow at the Free Market Institute of Economic Affairs, wrote on X, formerly known as Twitter: “More evidence that monetary tightening is tipping Europe back into #recession…

“Euro area #construction PMI fell to 42.7 in October (#Germany just 38.3), even weaker than the UK’s 45.6. Housebuilding in particular is highly rate-sensitive.” (sic)

The German economy is projected to shrink by 0.4 percent in 2023, according to the European Commission’s (EC) economic growth forecast.

Commenting on the forecast, Paolo Gentiloni, commissioner for economy said: “The EU avoided a recession last winter – no mean feat given the magnitude of the shocks that we have faced.

“However, the multiple headwinds facing our economies this year have led to a weaker growth momentum than we projected in the spring.”

In contrast, the EC conceded in its forecast that the UK has “held up better than previously expected”, despite energy prices and inflation being high.

However, it noted that while monetary policy continues to tighten amid “persistent inflationary pressures”, the outlook for trade, investment and productivity “remains weak”, and the growth projection for 2024 is also now lower.

The woes in the Eurozone come just weeks after Julian Jessop told “Even the Germans agree that Germany is the sick man of Europe! This has been a theme in the local press for many years.

“There are many problems, but the three most important are a failed energy policy, excessive dependence on export-led manufacturing, and overreliance on cheap migrant workers.

“These have been cruelly exposed by Russia‘s invasion of Ukraine, the slowdown in China, and the loss of many foreign staff who returned home during COVID-19 and have not returned.”


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