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Tue May 11 2021

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Eurozone construction returns to growth

9 Apr Job creation has resumed in the eurozone’s construction sector after 12 months of falls, though some activities and countries are still in decline.

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New orders in the sector have return to growth territory and business optimism is strong, according to the latest IHS Markit Eurozone Construction Purchasing Managers’ Index (PMI). The PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 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, with numbers above 50 indicating growth. The index rose from 45.0 in February to 50.1 in March, signifying a fractional expansion in construction activity in the construction zone. This marked the first rise in activity since February 2020 and the downturn caused by Covid-19.

Usamah Bhatti, economist at IHS Markit, said: "Eurozone construction companies reported fractional growth in March, marking for the first increase since the pandemic disrupted activity across the bloc throughout 2020. Incoming business also expanded in the latest survey period, as the appetite for new construction projects in the eurozone began to return, reportedly in public sector work. As a result, firms across the bloc increased workforce numbers marginally in March, the first instance of job creation since February 2020. As short-term disruptions lifted gradually and postponed projects resumed, eurozone-based construction companies were optimistic that activity would rise over the coming 12 months, with the degree of positive sentiment remaining at a strong level. By country, Italian firms noted a second successive rise in activity, with the pace of growth the fastest since January 2007. Builders in France and Germany continued to report further declines in construction activity, although both recorded softer rates of decline.”

Latest data pointed to a renewed expansion in employment levels at eurozone construction firms. Although marginal, the increase in workforce numbers was the first since February 2020, with anecdotal evidence suggesting a rise in demand had required additional capacity. Both French and Italian firms recorded job creation in March, with the latter posting the strongest rise since June 2019. German firms noted a marginal fall in employment levels, however.

The return to growth was led by house-building activity, which rose for the first time in 13 months. There were also softer declines in both of the other two monitored sectors - commercial construction and civil engineering.

New orders received by eurozone construction firms returned to growth in for the first time in 13 months in March. Though the pace of the increase was marginal, it was the fastest since January 2020. Businesses commented that a number of projects postponed due to the pandemic were brought to tender, notably in the French and Italian public sector. Only firms in Germany indicated that new business had fallen in March, while their French counterparts signalled a renewed expansion. Italian firms, meanwhile, reported the quickest rise since May 2001.

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Home building among eurozone constructors returned to expansion territory in March, though the pace of growth was modest overall. The increase was led by a strong rise in Italy, with support from a stabilisation in activity in France. However, German firms noted the second successive fall in house-building, although the pace of decline softened from February.

Meanwhile, commercial construction activity was the worst performing sub-sector in the latest survey period. The fall in March was the 13th in a row, yet the pace of contraction was the softest since July 2020. Construction firms in France and Germany continued to report sharp contractions, while Italian businesses signalled a further, solid rise in activity.

Work undertaken on civil engineering projects reduced for the 20th month in succession in March. That said, the decline softened from February and was the softest since February 2020. A solid contraction in Germany offset marginal growth.

Business optimism remains strong recorded at both Italian and French builders.

Of the three largest economies in the eurozone, only firms in Italy registered an expansion in March. Moreover, Italian construction activity rose at the fastest pace since January 2007. At the same time, German firms signalled the softest contraction in output for seven months. Meanwhile, French firms signalled a fractional contraction, with the pace of decline the softest in the current nine-month sequence.

Overall sentiment among eurozone building companies remained positive in March, as indicated by the Future Activity Index staying above the 50.0 no-change threshold for the third month running. All three of the largest economies in the bloc anticipated a rise in activity over the next 12 months, the first time this has occurred since February 2020.

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