Construction firms are looking to cut costs in the face of inflationary pressures and a prolonged fall in demand.
ADVERTISEMENTThe eurozone Construction PMI Total Activity Index came in at 43.4 in November, up slightly from October’s ten-month low of 42.7, according to data from Hamburg Commercial Bank (HCOB) and the index provider S&P Global.
The Total Activity Index, which is based on questionnaires sent to around 650 construction firms in Germany, France, Italy and Ireland, tracks the volume of construction activity each month to determine the health of the sector.
A reading below 50 suggests economic contraction, whereas a number above this signals growth.
Although November’s rate of decline was slower than in October, the new figures still show a sharp drop in construction activity.
This was predominantly driven by sluggish demand in the housing sector, and commercial and civil engineering firms also saw a decrease in activity.
Contractions were particularly centralised in France and Germany, with the latter recording the sharpest output drop seen in over three-and-a-half years.
Only Italian construction firms managed to register a rise in activity, with this figure climbing at its fastest rate since May 2022.
“The construction sectors in eurozone countries navigate the storm of high-interest rates with varying degrees of resilience,” said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Speaking of Italy’s relative success, she commented: “Politics are likely at play, with the EU Commission's nod to the use of the EU Next Generation Fund for major infrastructure projects in Italy potentially influencing the positive trend”.
The Next Generation Fund is a €750 billion package designed to help EU member states recover from the effects of the COVID-19 pandemic.
Saving is tricky when inflation bites
In response to dampened demand, eurozone construction firms were generally looking to cut costs last month.
Input buying was down for the 18th consecutive month, and firms were also more reluctant to hire subcontractors.
Yet despite efforts to rein in superfluous spending, inflationary pressures meant that last month’s input costs rose at their fastest pace since April.
We must however note that this trend across the eurozone wasn’t always visible at a national level.
Last month, France and Italy recorded increases in cost burdens. However, the rate of increase was slower than that seen in October and German construction firms saw a modest fall in input costs.
Falling demand unsurprisingly translated into a decline in employment in the construction sector.
Eurozone employment levels dropped at the fastest pace seen since May 2020, although job losses are still relatively modest.
When asked about their predictions for the coming year, eurozone construction firms remained pessimistic, with confidence slipping to its lowest level in a year.
ADVERTISEMENTForecasts from France and Germany were the most downbeat, although Italian firms showed some optimism.
And how did the neighbours fare?
HCOB and S&P also released data on the UK’s construction industry on Wednesday.
Business activity fell for the third consecutive month, led by a fall in demand for residential housing projects, although commercial building showed some resilience.
The Construction Purchasing Managers’ Index was down from 45.6 in October to 45.5 points in November.
Employment levels also decreased for the first time in ten months, and input costs fell at the fastest rate seen since July 2009.
ADVERTISEMENT“A slump in house building has cast a long shadow over the UK construction sector,” said Tim Moore, economics director at S&P Global Market Intelligence.
“Elevated mortgage costs and unfavourable market conditions were widely cited as leading to cutbacks on house building projects. Rising interest rates and the uncertain UK economic outlook also hit commercial construction in November,” he explained.
