5th April 2024

Key Findings:

Decrease in home building one of the sharpest since records began
Demand for construction projects falls at steeper pace
Firms retain pessimistic view towards the forthcoming year

France’s construction sector endured another substantial decline in activity at the end of the first quarter, extending the industry’s downturn that has been ongoing since mid-2022. While all three monitored types of construction activity decreased, home building exhibited the strongest drag by a sizeable margin.

Weak demand conditions also persisted, with the contraction in new orders intensifying. Looking ahead, surveyed businesses retained a pessimistic assessment towards the next 12 months.

The headline HCOB France Construction PMI® Total Activity Index — which measures month-on-month changes in total industry activity — fell to 41.0 in March, from 41.9 in February. By dropping further beneath the critical 50.0 nochange threshold, the latest reading of the headline figure signalled a faster rate of contraction in construction activity across France and extended the current period of decline to 22 months.

All three monitored forms of construction registered a decrease in activity during March. Of note was the housing sector, which saw its fastest fall in output since November 2014, excluding pandemic-hit months. Nearly half of home builders (47%) recorded reduced activity in March.

The latest survey data also indicated a sharp decline in commercial building work. This was despite the pace of reduction cooling to its weakest in four months. By contrast, civil engineering activity registered a quicker contraction at the end of the first quarter, and one that was the most pronounced since October 2023.

Total construction activity was adversely impacted by a further shrinking of order book volumes in March. For a third month running, new projects received by French builders fell at a faster rate. Of those firms that registered weaker demand (around a third), fewer calls for tender were mentioned. Overall, the pace of decline was the fastest for ten months.

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Lower activity levels, in tandem with reduced intakes of new work, led French constructors to cut purchases in March. The decrease was marked and slightly quicker than seen in February. Despite a sustained drop in buying activity, French construction businesses experienced a sixth successive month of delivery delays at the end of the first quarter.

Prices paid for materials and other necessary construction inputs continued to rise. However, the rate of inflation was only marginal and the second-softest in nearly four years.

Looking ahead, March survey data revealed a pessimistic 12-month outlook by French construction companies. Negative sentiment reflected downbeat expectations for the real estate sector, inflation and projections of sustained weakness in demand.

In turn, March survey data revealed a further month of jobs cuts by French constructors. The latest decline — which was the thirteenth in a row — was solid and the fastest since July last year.

Commenting on the PMI data, Norman Liebke, Economist at Hamburg Commercial Bank, said, “The French construction sector ends the first quarter of 2024 on a bad note. Activity declined sharply for another month, with new orders, the employment situation and subcontractor quality worsening. Accordingly, companies are more pessimistic about the future compared to the previous month.

“The downturn in the French construction sector is set to persist into the second quarter. According to our HCOB forecast model for economic activity, construction will be a negative contributor in the second quarter. This aligns closely with the pessimism of French construction companies, who linked their negativity with weak demand conditions, inflation and a bleak outlook for the real estate sector. A worse employment situation confirms that companies are preparing themselves for leaner times.

“The recession in the French construction sector is broad-based. Although activity in all three sectors – housing, commercial and civil engineering – fell further in March, the decline was more pronounced in the residential sector. A staggering 47% of respondents reported a decline in housing activity while only 9% noted an uptick in activity.”

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