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Eurozone construction activity improves

7 Dec 21 Construction activity in the eurozone has risen at the steepest rate in nearly four years, though business confidence is less positive despite jobs being created.

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Construction firms in the eurozone expanded their workforce numbers for the sixth successive month in November. The rate of job creation picked up from October to reach the fastest since February 2020. National data indicated that all three of the bloc's largest economies reported a rise in employment levels, led by Italy.

Latest data showed that construction activity rose at a series-record pace in Italy. In France, activity rose for the second month running and at the fastest pace since June 2020. In contrast, the downturn in Germany continued, though the rate of contraction eased to the softest for 15 months.

Severe supply chain delays kept input cost inflation elevated last month while business confidence eased to seven-month low.

The IHS Markit Eurozone Construction Purchasing Managers’ Index (PMI) is 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.

The Total Activity Index rose to 53.3 in November from 51.2 in October, which pointed to a solid expansion in overall construction activity that was the sharpest since February 2018. Companies often linked the increase to strengthening demand. Sub-sector data showed a sustained rise in home building activity, as well as a second successive rise in commercial construction. Civil engineering work continued to fall, although at a softer pace.

Usamah Bhatti, economist at IHS Markit, said: "Latest PMI data indicated that the eurozone construction sector saw a sharper upturn in activity in November, with both output and new orders rising on the month.

“Moreover, the rise in construction activity was the sharpest since February 2018. That said, rising costs and material shortages continued to weigh on sector performance midway through the fourth quarter. Notably, input costs continued to increase at a substantial pace amid ongoing severe supply chain disruption. These lingering issues weighed on business sentiment, with the degree of optimism regarding the year-ahead outlook easing to the softest since April.

“At the national level, Italian firms reported a tenth consecutive rise in activity that was the sharpest on record, while firms in France noted the quickest expansion since June 2020. At the same time, German firms signalled a sustained fall in activity, albeit one that was the softest for 15 months.”

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Home building in the eurozone increased for the ninth consecutive month in November. The rate of expansion strengthened to the strongest since January 2018 and was solid overall.

Work undertaken on commercial construction projects in the eurozone rose for the second month running in November. The rate of increase was moderate, albeit the quickest since December 2018.

As has been the case since August 2019, civil engineering activity fell across the eurozone midway through the fourth quarter. Though solid overall, the pace of decline was the softest for five months.

Eurozone construction companies signalled a further modest rise in new business during November, taking the current sequence of growth to four months. Higher amounts of new work were generally attributed to stronger demand among clients and continued government support for the sector.

November data signalled an increase in purchasing activity for the ninth time in as many months among eurozone construction firms. The rate of expansion was solid overall and the sharpest since June.

Supplier delivery times continued to lengthen rapidly halfway through the final quarter of the year. The extent to which vendor performance deteriorated softened from October, but remained among the fastest on record. Lead times increased sharply across all three of the bloc's largest economies.

The seasonally adjusted Input Prices Index pointed to sustained and rapid rise in costs faced by eurozone construction firms in November. The rate of inflation was broadly unchanged from October, therefore remaining close to record highs. On a national level, cost burdens rose substantially across all three monitored economies, with Italian firms seeing the sharpest rise in the survey history.

Eurozone construction firms were confident that activity will increase over the next year. Notably, the degree of positive sentiment eased from the previous survey period and was the softest since April.

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