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Tue November 24 2020

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Eurozone construction activity continues to fall

5 Nov Construction activity in the eurozone fell further in October and the rate of job-shedding accelerated.

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Business expectations remain downbeat, according to the latest findings from the IHS Markit Eurozone Construction Purchasing Managers’ Index (PMI). The figures are compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of about 650 construction firms in the eurozone.

The headline figure is the Total Activity Index, which tracks changes in the total volume of construction activity compared with one month previously. This fell to 44.9 in October from 47.5 in September, signalled an eighth consecutive monthly decline in output. Moreover, the rate of reduction was the quickest since May.

Contractions were seen across the three largest eurozone economies, with France registering the most severe downturn.

Usamah Bhatti, economist at IHS Markit, said: "The downturn in eurozone construction extended into October, as the sector continued to report falling activity, alongside a sharper fall in incoming business. Employment levels also dropped at a solid pace as construction companies reduced headcounts amid lower output requirements.

“As a result, construction firms in the eurozone were increasingly pessimistic regarding the year-ahead outlook, as the adverse impact of the coronavirus disease 2019 (Covid-19) hampered activity in the construction sector and wider eurozone economy. This was exacerbated by increasing Covid-19 cases, and reimposed stringent measures to stem transmission across the eurozone. Within the bloc's construction sector, there were marked declines in both commercial and civil engineering activity, as well as renewed weakness in home building activity, which fell at the fastest rate since May.”

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The sharper decline brought to an end a three-month sequence of broadly similar, marginal contractions, and signalled renewed downward momentum in housing activity. A slight rise in residential construction in Germany, was offset by a marked decline in France and a renewed fall in Italy.

Work undertaken on commercial construction projects continued to contract during the latest survey period. The pace of decline quickened and was the fastest since May. On a national basis, all monitored countries registered contractions, with France and Germany recording sharp falls.

Meanwhile, civil engineering was the worst performing of the monitored sub-sectors in October, as infrastructure activity continued to decline sharply. The latest data signalled a further extension to the current sequence of contraction, with output falling for 15 successive months. The downturn was predominantly driven by a marked contraction in Germany, although reductions were also sustained in France and Italy.

New orders received by eurozone construction firms fell further in October. Moreover, the pace of contraction quickened and was the fastest since June. Reports of a reluctance among clients to take projects to tender were common, particularly in France and Germany which broadly drove the overall decline in October. Italian construction firms, however, signalled a marginal, albeit slower, rise in new business in October.

Employment levels in the eurozone construction sector continued to shrink in the latest survey period. The rate of reduction was the sharpest for five months amid reduced output requirements. At the national level, German firms reported further job losses in October, while French companies recorded the first reduction in staffing levels since June. Italian companies meanwhile, reported an increase in employment for the first time in four months.

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