Germany’s construction PMI for July increased to 46.3 from 44.8, marking its highest level since February 2023. This change suggests a slight easing in the construction downturn. The uptick is partly due to more commercial building projects. However, challenges persist as companies continue to cut jobs and reduce buying activities due to a lack of new work. Although the PMI has risen by about four points since January, the construction sector remains in recession when compared to trends in manufacturing and services. Input prices are still climbing, and business expectations for the next year have not yet reached expansion levels.

Commercial Construction and Residential Trends

Commercial construction experienced its first growth since March 2022, while residential construction is declining at a slower pace. However, civil engineering dropped in July after three months of growth, despite strong performance in June. The outlook for the construction sector remains grim, with low confidence among companies. New orders are falling due to high prices and cautious customers, negatively affecting residential construction. Employment has declined for 40 straight months, and while input prices have risen for five months, they are now increasing at a slower pace than usual. As of August 6, 2025, the small improvement in Germany’s construction PMI appears more like a trap than a genuine trend. We view the rise to 46.3 as a minor correction in a deep recession, not a recovery sign. Traders might consider this an opportunity to establish short positions by selling out-of-the-money call options on construction giants like Hochtief, capitalizing on the still-bleak overall outlook. The contrast between improving commercial work and weak residential building suggests a pairs trading opportunity. We recommend going long on companies focused on commercial and infrastructure projects while shorting firms that concentrate on residential housing. Heidelberg Materials’ recent Q2 2025 earnings reflect this difference, showcasing strength in commercial segments but ongoing struggles in housing.

Broader Economic Consequences

This weak data from a key sector supports our bearish view on the overall German economy. With the most recent inflation figures around 2.5%, the European Central Bank has limited options for cutting rates to boost growth. This situation is likely to restrain the DAX index and exert downward pressure on the EUR/USD exchange rate in the coming weeks. Looking ahead, the drop in new orders and the 40th consecutive month of declining employment are crucial signals for us. They indicate there is no genuine demand to support a sustained recovery, echoing sentiments from false starts in 2023 and 2024. Therefore, any strength in the sector should be seen as a temporary bounce and an opportunity to buy put options on German real estate ETFs. Create your live VT Markets account and start trading now.

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