Germany’s construction sector posted a record increase in input cost inflation in March

Germany’s construction sector reported a ‘sharp spike’ in cost pressures in March, driven by the crisis in the Middle East, according to the latest S&P Global Germany Construction PMI.

The headline total activity index rose to 48.0 in March from 43.7 in February, marking the highest level so far in 2026, however worsening supply chain delays and a slump in new orders are far from promising prospects for the sector, as expectations for the year ahead showed a ‘marked deterioration’.

As a result, construction firms remained cautious, cutting purchasing activity and reducing workforce numbers, although both declines slowed slightly compared with the previous month.

“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,” commented Phil Smith, economics associate director at S&P Global Market Intelligence.

“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.”

Sector by sector

Sector performance was uneven across different construction segments – housing construction fell at a much slower rate, while commercial activity remained the weakest segment, contracting despite some easing.

In contrast, civil engineering projects showed a slight expansion, continuing a modest positive trend and helping to offset weakness elsewhere in the sector.

Input price inflation

Input price inflation surged to its highest level since October 2022, with the steepest month-on-month rise in the series history. Companies reported significant increases in energy-related costs, including fuel and transportation, as well as higher prices for materials such as chemicals and plastics.

Supply chains also came under renewed pressure. Delivery times for building materials lengthened significantly, reaching their worst level in nearly three-and-a-half years.

Finally, after improving earlier in the year, expectations for the next 12 months fell back into negative territory, with firms citing weak demand, elevated prices, and geopolitical uncertainty as key concerns.

“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.” Smith added. “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.” Read more here.