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Sun May 31 2020

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Eurozone construction activity slumps

7 Apr Construction activity in the Eurozone slumped in March, falling at fastest rate for over 11 years as measures to limit the spread of coronavirus took hold.

New orders plummeted and both employment and purchasing activity fell sharply. Supply chain disruptions meant that firms also faced great difficulty in securing the materials they needed.

Delivery times lengthened at a pace not seen in the 20-year history of the IHS Markit Eurozone Construction Purchasing Managers’ Index (PMI) survey. Business expectations turned negative for the first time for nearly four-and-a-half years.

The headline PMI figure plunged from 52.5 in February to 33.5 in March, pointing to the steepest decline in construction activity across the currency area since February 2009, during the global financial crisis.

"The Eurozone construction sector fell into a severe downturn in March as measures to contain the Covid-19 outbreak hit activity and demand,” said Bernard Aw, principal economist at IHS Markit, which compiles the survey. "Construction activity fell sharply as firms reported slumping demand. This in turn adversely impacted hiring and purchasing activity. Construction employment shrank at a rate not seen for a decade while firms cut back on input purchases at the fastest rate recorded since the survey started just over 20 years ago.”

The downturn in construction activity was broad-based across the Eurozone, with Italy recording the sharpest decline. Germany registered the slowest contraction of construction output, albeit still marked overall.

At the sub-sector level, the overall decline was led by a further slump in civil engineering work, in which the rate of contraction was the fastest in eight years, while sharp decreases in home-building and commercial construction projects also contributed.

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With construction activity contracting sharply in March, Eurozone construction firms cut their staff numbers for the first time since January 2017. Moreover, the rate of job shedding was the fastest for a decade and steep overall. Across the Euro area, the drop in construction employment was quickest in Italy, followed by France.

The downturn in construction activity also saw firms scaling back their purchases of raw materials and other building inputs for the first time since October 2016. Moreover, the decline in purchasing activity was the steepest recorded in the survey's 20-year history. At the national level, the result was predominantly driven by a record fall in Italy, with France also reporting a severe decline.

Despite the sharp reduction of input purchases, suppliers' delivery times in the Eurozone construction sector lengthened further in March, and at a rate not seen since the survey started in January 2000.

Falling activity occurred concurrently with a slump in demand. New business plunged in March, falling at the fastest rate for over 11 years. National data showed a broad-based decline across the eurozone, led by severe falls in Italy and France.

On the cost front, input prices faced by Eurozone construction firms continued to rise in March. However, the rate of inflation eased to the slowest for three-and-a-half years. National data revealed slower increases in all monitored eurozone economies, with France and Italy reporting the slowest pace of inflation.

Aw added: "Unsurprisingly, business sentiment was seriously dented, with Eurozone construction firms expressing pessimism for the ifrst time in nearly four-and-a-half years, hinting at challenging times in the months ahead, especially if the antivirus measures continue for a prolonged period.” 

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