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Tue January 26 2021

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Eurozone’s downturn in construction continues

7 Jan The eurozone experienced declines in both activity and new business in December and the pace of job shedding quickened.

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The findings came in the latest IHS Markit Eurozone Construction Purchasing Managers’ Index (PMI). which 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. The index slipped to 45.5 in December from 45.6 in November, signifying a further solid contraction in construction activity.  The latest fall extended the current sequence of decline to ten months, although the rate of reduction remained far softer than at the nadir of the downturn caused by the Covid-19 pandemic in April.

Latest data showed a broad-based downturn in output across the three monitored sub-sectors, with the sharpest decline recorded in commercial construction, followed by civil engineering activity. Meanwhile, housing activity fell once again in December.

Usamah Bhatti, economist at IHS Markit, said: "Eurozone construction companies reported a continued downturn in activity during December, while incoming business also fell at a solid, albeit softer pace. With appetite for new construction projects remaining subdued, firms across the bloc reduced workforce numbers at a slightly quicker pace in the latest survey period. Concerns surrounding the longer-term impact that the pandemic will have on the wider construction sector, alongside a lack of new projects in both the public and private sector being bought to tender resulted in an extension to the pessimistic outlook held by eurozone-based builders for a fifth month in a row. By country, France and Germany continued to report further declines in construction activity, with the former signalling the steepest fall since May. Italian firms on the other hand registered marginal growth for the first time since September."

The result indicated the tenth consecutive fall in housing activity, with the pace of decline quickening from the previous survey period. The reduction was driven by a further, marked fall in France, while German and Italian firms signalled marginal expansions in home building activity.

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Meanwhile, commercial building activity was the worst performing sub-sector monitored for the second successive month. The fall in December extended the current sequence of decline to 10 months and was strong overall. Construction firms in each of the three largest eurozone economies recorded contractions, the sharpest of which was in France.

Work undertaken on civil engineering projects continued to reduce in December. Despite the decline softening slightly from November, the fall in infrastructure activity was solid overall and was the seventeenth in as many months. A return to growth among Italian builders was more than offset by   contractions in Germany and France, with the latter falling at the fastest pace since May.

Of the three largest economies in the eurozone, firms in Italy registered a return to expansion in December, the first in three months. At the same time, German firms signalled a further, albeit softer, reduction in activity. However, constructors in France reported a marked fall in construction activity, with the latest fall the sharpest since May.

New orders received by eurozone construction firms fell further in December. That said, the pace of contraction eased and was the softest fall recorded since August. Reports of a volatile market hindered new projects being bought to tender in both the public and private sector, particularly in France and Germany. Italian firms, meanwhile, signalled a marginal increase in new business in the latest survey period, extending the current sequence of expansion to seven months.

December data pointed to slightly quicker fall in employment levels at eurozone construction firms. Although modest overall, the reduction in workforce numbers was the tenth in as many months, with anecdotal evidence suggesting that fixed term contracts were not renewed amid a lack of demand.

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