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Eurozone construction falls on dampened housing activity in March

The high water level of the river Moselle has reached numerous houses along the banks in the Kues district Bernkastel-Kues, Germany, Thursday, Jan. 4, 2024.
The high water level of the river Moselle has reached numerous houses along the banks in the Kues district Bernkastel-Kues, Germany, Thursday, Jan. 4, 2024. Copyright Harald Tittel/(c) Copyright 2024, dpa (www.dpa.de). Alle Rechte vorbehalten
Copyright Harald Tittel/(c) Copyright 2024, dpa (www.dpa.de). Alle Rechte vorbehalten
By Indrabati Lahiri
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Reductions in commercial and civil engineering activity, as well as a decline in new business also contributed to this figure.

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The HCOB Eurozone construction purchasing managers’ index (PMI) for March came out on Friday morning, clocking in at 42.4, according to S&P Global. This was a fall from February’s 42.9 and was mostly due to a significant fall in housing activity.

A major reduction in new business, caused mainly by dampened demand, also resulted in more jobs being slashed, as well as some budget tightening. This was reflected in less subcontractors being used, as well as fewer raw and input materials being purchased.

Civil and commercial engineering companies saw ongoing reductions in activity, with March commercial output being at the lowest level since November 2023.

On a positive note, cost pressures rose at the slowest rate in five months.

On the other hand, the UK construction sector saw some growth in March 2024. The S&P Global UK construction PMI was also released on Friday, clocking in at 50.2, according to S&P Global. This was an increase from February’s 49.7, and was also the highest level since August 2023.

This figure was mainly boosted by new business enquiries and sales pipelines picking up, as consumers were more positive about the economic outlook for the coming few months, as well as their own financial circumstances. Furthermore, new orders also shot up at the quickest pace since May 2023.

Why is the Eurozone construction sector struggling?

In the last few months, the Eurozone construction sector has been going through an especially hard time, with building costs still being uncomfortably high and less building permits being issued overall. Along with this, existing house prices are also inching up, although this could support sales figures for new build homes.

The ongoing impacts of a weaker global and Eurozone economy, as well as persistently high interest rates have also made both construction companies, as well as home buyers more cautious.

This is especially true for construction companies in key markets such as Germany, which have put a number of projects on hold, as well as cancelled several others. Construction firms often rely on a large amount of debt for their projects, hence, higher interest rates can make the cost of borrowing that much more expensive for them.

However, the EU has seen relatively stable renovation work figures in the last few months, with digital infrastructure investments and sustainability works also seeing good progress.

Regarding the EU construction outlook for 2024, ING Group said, “We expect a small decline in production volumes (-0.5%). Due to long lead times, new residential and non-residential building volumes will decline further as a result of the reluctance of home buyers and firms to invest in new premises in the past.

“However, the renovation subsector (including sustainability works) is seeing structural growth in demand. We also expect that investments in infrastructure will continue to grow. The main drivers for this continual growth will derive from the EU Recovery funds, investments in digital infrastructure, extensions of the power grid and the energy transition.”

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