Germany and PMI: the Achilles' heel is construction

As indicated by Atradius, the performance of the German materials and construction industry has improved in recent years and the outlook for 2015 is positive. Turnover grew by 4% in 2014 and a further increase is expected this year as well 2% growth rate driven by residential construction (+3%), commercial construction (+1,5%) and public construction (+1%). Despite the industry showing very good performances, the wood/sawmill sector and related industries continue to face problems, despite an increase in global demand. The reasons for this are the high price of German timber, financing costs and excess production capacity. And that's why analysts consider the construction sector to be riskier than other industries in the country. Many construction companies, especially medium-small ones, traditionally have a weak equity ratio (the share of equity used to finance company assets), although it has improved slightly in recent years reaching around 12-13% in 2014. According to Creditreform, delinquencies decreased by more than 5% in 2014, to 3.450 cases. However, the insolvency rate is still too high than in other sectors (95 insolvencies for every 10.000 firms compared with 42 for every 10.000 in the manufacturing sector). In 2015 a further decrease in insolvencies is expected (to 3%). Thus, in view of these data, analysts are very cautious in assessing the solvency of companies in the sector that have been operating for less than a year, unless they are part of (or spin-off from) larger groups.