Germany's construction sector remained firmly in contraction but the pace of fall softened in January, survey data from S&P Global revealed Thursday. The HCOB construction Purchasing Managers' Index rose to 42.5 in January from 37.8 in December.

Although the score was firmly below the neutral 50.0 that separates growth from contraction, the reading was the highest since May 2023.

There were slower decreases in activity across each of the three broad construction categories.

Civil engineering reported the smallest decline, where activity dropped at the weakest rate for eleven months. The contractions in housing and commercial activity were the softest since May 2023.

Activity was held back by a lack of demand. The fall in orders was the most marked since the opening month of last year.

Employment decreased in each of the past 34 months in January. Also, the use of subcontractors decreased sharply.

Lower workloads translated into job cuts, meaning construction employment has fallen in each of the past 34 months. Further, constructors scaled back their purchasing activity.

Lower demand for building materials and products in turn imparted downward pressure on purchase prices. Average input costs dropped for the first time in three months. Average lead times for purchases lengthened slightly in January.

German building companies expect their activity levels to drop over the coming twelve months. Expectations were the least pessimistic since last June.

Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said the New Year is starting off less bleakly than the old one ended. The recession, which has been ongoing since spring 2022, has slowed significantly across all sectors.

The noticeable relief may have something to do with the fact that market participants expect the European Central Bank to cut interest rates further, de la Rubia added. Additionally, the construction sector is less exposed to the threat of US tariffs, making activity in this sector more attractive, the economist said.

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