6th April 2023

Key Findings:

Housing-led construction downturn continues in March
New construction projects fall sharply and confidence worsens
Input price inflation slows to 25-month low but remains steep

French construction activity continued to decrease in March, reflecting a further broad-based decrease in all three monitored types of building work. Activity on residential projects provided the strongest drag, although solid decreases were also recorded for commercial and civil engineering work.

Weighing on constructor performance was a further decline in new orders during March. Business confidence worsened, with firms predicting a decline in activity over the next 12 months. Employment levels fell, although purchasing activity was broadly unchanged.

The headline S&P Global France Construction Activity Index – which measures month-on-month changes in total industry activity – posted 45.3 in March, only fractionally up from February’s 45.2. The latest headline figure signalled a strong contraction in overall construction activity in France, and one that was broadly unchanged from February.

Of the three broad categories of construction monitored by the survey, work undertaken on residential projects saw the steepest monthly decline at the end of the third quarter. Construction activity relating to commercial projects fell at the quickest pace since December 2022, while a solid but weaker contraction was seen for civil engineering work.

The latest survey data indicated a deepening downturn in demand for construction work at the end of the first quarter. This was evidenced by new orders falling at the steepest rate for three months. Just under a third (32%) of respondents recorded a decrease in the volume of incoming new projects, linked to budget constraints at clients.

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Deteriorating demand conditions coincided with a weakening of confidence at French construction companies in March. After maintaining a neutral view towards the outlook in both January and February, expectations turned pessimistic at the end of the first quarter.

For the first time since last November, employment levels across France’s construction sector declined during the latest survey period. In addition to lowering payroll numbers, the usage of subcontractors also fell.

Nevertheless, after falling in February, purchasing activity was broadly unchanged at the end of the first quarter. Average lead times continued to lengthen markedly, however, in part due to strikes and a shortage of workers at vendors. The extent to which vendor performance deteriorated was nevertheless the softest since January 2021.

French construction companies continued to report rising raw material costs during March. The latest survey data signalled another substantial rise in overall input costs, although the rate of inflation eased to its weakest in just over two years.

Joe Hayes, Senior Economist at S&P Global Market Intelligence, said, “France’s construction sector continued to deteriorate in March, with several of the survey’s indicators worsening on the month. In particular, the volume of new construction projects fell at a sharper rate, in part driving business confidence lower as firms grew concerned about tightening client budgets.

“Surveyed companies are seeing the steepest fall in residential building activity, highlighting the challenge this sector faces as household incomes are squeezed by higher interest rates and elevated inflation. A further decrease in commercial building activity also reflects poorly on business investment.”

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