5th April 2024

Key Findings:

Consistent with February, activity increases only fractionally
Solid jobs growth maintained, despite only a marginal rise in new orders
Input buying falls for the first time in seven months and cost pressures ease

Growth was only just maintained across the Italian construction sector in March, according to the latest PMI® results. Despite recording only marginal rates of increase across both activity and new orders, optimism picked up and jobs growth was sustained. However, construction firms across Italy cut their outgoings by reducing their purchasing activity. Meanwhile, the rate of input price inflation softened in March.

The headline HCOB Italy Construction Purchasing Managers’ IndexTM (PMI®) – which measures month-on-month changes in total industry activity – posted at 50.3 in March, thereby maintaining a fractional rate of growth that was the same as seen in February. Some panellists linked the uplift to increased interest surrounding the National Recovery and Resilience Plan (PNRR).

At the sector level, as the only monitored sub-category to record an expansion in activity in March, commercial construction drove the overall uplift in activity. That said, having eased on the month, the rate of increase was only marginal. Elsewhere, residential building activity saw a fractional decline at the end of the quarter, marking the second decrease in back-to-back months. Meanwhile, civil engineering activity fell into contractionary territory for the first time in four months. The pace of decline was only modest, but nevertheless placed the sub-sector at the bottom of the rankings.

The overall soft activity growth was closely linked to demand conditions in March. Inflows of new work to Italian constructors remained in positive territory but signalled only a marginal improvement at the end of the quarter. That said, the rate of expansion accelerated slightly compared to February. Where an increase was reported, firms mentioned that they had secured new contracts.

With only marginal uplifts in both activity and new orders, Italian constructors were reticent to purchase more inputs in March. The level of purchasing activity fell for the first time since last August, with survey respondents mostly blaming the weaker pipeline of new work. The pace of contraction was only modest, however.

With lesser demand for inputs, cost pressures eased at the end of the quarter and were the least pronounced seen for eight months. The rate of input price inflation was subdued compared to the long-run trend, though still strong overall. Some firms blamed higher raw material prices and raised shipping costs due to the disruption in the Red Sea.

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Meanwhile, suppliers’ delivery times lengthened to a notably lesser degree than in January. Nevertheless, the deterioration in vendor performance, reportedly driven by difficulties in sourcing raw materials, remained more marked than the historic trend.

Supply-chain disruption was apparent in the quality of vendor performance across the Italian construction sector in March. Longer lead times for the delivery of inputs were reported again as firms frequently mentioned that suppliers remained under pressure. In addition, the deterioration in vendor performance was rapid and more pronounced than in February.

Some positive news came with regards to employment in March, as constructors across Italy continued to recruit additional staff. This thereby extended the current trend of job creation to nearly a year-and-a-half. The pace of jobs growth was solid and little-changed on the month.

Finally, optimism towards the year-ahead outlook for activity was at its highest since August last year, as firms foresee an increase in new contracts and overall new work.

Commenting on the PMI data, Dr Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank, said, “The Italian construction sector avoided drifting into contraction. In March, the HCOB PMI for the construction industry managed to maintain the previous month’s value of 50.3, thereby resisting the downward trend seen in the sector across other European countries, driven by high interest rates and inflation.

“The construction sector in Italy showed a mixed picture. While the commercial sector was the only sub-category experiencing growth, the Housing Activity Index increased compared to the previous month to show a softer decline. At the rear of the sub-categories in March was civil engineering, which returned to contraction territory as the index fell notably on the month.

“Italian construction firms continued to grapple with high prices. Input costs for construction companies continued to rise in March, albeit at a slower pace compared to the previous month and marking the slowest growth since July 2023. Companies surveyed reported that both a shortage of raw materials and disruptions to shipping routes via the Red Sea have impacted prices.

“Despite challenges, there is optimism about the future. The Italian construction sector saw a slight increase in orders compared to the previous month, supporting a stable employment situation. Expectations regarding future activity in March were also above the historical average. The HCOB Nowcast aligns with the optimism of the PMIs for the first quarter, expecting growth of around three and a half percent.”

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