Germany’s construction sector significantly moderated its decline in August. S&P Global’s headline construction activity PMI rose to 48.7 from 42.1 in July, its strongest reading in eight months. Despite the improvement, the indicator remained below the 50-point threshold that separates expansion from contraction.
August’s performance therefore offers a sign of stabilization for a sector that has endured a prolonged period of weakness. The decline in activity was the mildest since the current downturn began at the start of the year, although the data show significant differences across Germany’s various construction segments.
Commercial construction returns to growth
The main development came from commercial construction, which returned to growth for the first time since July 2025, albeit only marginally. This segment includes projects involving industrial facilities, offices, hotels, retail outlets and leisure spaces.
Residential construction also improved. Activity continued to decline in August, but recorded its slowest rate of contraction since December 2025. Civil engineering followed a different path: after being the best-performing segment for much of the year and posting a slight increase in July, it returned to negative territory in August.
The improvement in the headline indicator does not, however, mean that the sector’s underlying difficulties have disappeared. New orders declined sharply again, although the drop was less severe than in the previous month. Companies surveyed cited high prices and financing costs among the main factors continuing to constrain demand.
Employment continues to decline
The sector’s labor market has yet to show signs of recovery. Construction companies reduced their workforces for the seventh consecutive month, while the pace of job losses accelerated to its highest level since April.
Demand-related challenges have been compounded by renewed cost pressures. Input price inflation increased in August for the first time in four months, driven by rising oil prices. Companies also reported longer delivery times as a result of difficulties obtaining certain raw materials and disruptions to supply chains.
Expectations for the next 12 months remain negative, although they improved slightly from July. Companies cited a lack of new orders, pressure on disposable income, high costs and risks stemming from the conflict in the Middle East among their concerns. The survey used to compile the indicator includes responses from around 150 construction companies, with data for this edition collected between Aug. 10 and 27.
The construction data come at a time when other indicators are presenting a mixed picture of the German economy. In August, manufacturing showed a more favorable performance, while services remained in contractionary territory. The flash manufacturing PMI reached 54.1, up from 52.2 in July, while the final services index stood at 49.7.
The jump in the construction PMI from 42.1 to 48.7 therefore represents a notable improvement, but it is still too early to speak of a recovery. Weak new orders, falling employment and cost pressures continue to weigh on a sector that came considerably closer to the threshold of stability in August.
