HCOB Italy Construction PMI: Activity Returns to Expansion Territory Amid Sharper Rise in New Orders in March

Key Findings:

• Fastest rise in activity since the end of 2023
• Purchasing quantities increase amid stronger inflows of new work
• Strongest cost pressures in over two years

After having signalled a decline in activity in February, the Italian construction sector appeared to bounce-back in March. Construction activity rose in the latest survey period, supported by greater volumes of new work. Operating expenses rose at a robust pace in March, with cost pressures likely a result of increased purchasing quantities. The future of the Italian construction sector looked brighter, but confidence levels remained subdued when put into a historical context.

At 52.4, the headline HCOB Italy Construction Purchasing Managers’ IndexTM (PMI®) – rebounded back above the crucial 50.0 mark that separates growth from contraction (February: 48.2).

Construction activity in Italy has risen in three of the past four months, most recently attributed to a rise in new orders for building work and the opening of new sites. The rate of expansion was the sharpest in 15 months and moderate overall.

There was a turnaround at the sub-sector level in March, as two of the three posted renewed activity growth. The commercial category posted the fastest rise in activity, and one that was the quickest seen for 15 months. Although housing activity also rose, the rate of expansion was only slight. Meanwhile, civil engineering remained the worst performing category, though the rate of contraction in activity was noticeably softer than earlier in the quarter.

The improvement in activity was centred on a rise in new construction orders in March. The latest influx of new work was the fourth in consecutive months, and the strongest improvement seen since the end of 2023. In anecdotal evidence, firms linked the uptick to new contracts and tenders awarded.

In line with new construction orders and partly due to the opening of new sites, there was a similarly strong rise in input buying in March. Where firms purchased materials, they noted a further decline in vendor performance, amid increased instances of delays.

Italian construction companies also signalled a rise in their operating expenses, largely reflective of increased raw material and energy costs. The rate of inflation on inputs was substantial having picked up to the strongest in 25 months.

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Looking to the next 12 months, there was a greater sense of confidence among firms that activity would rise from present levels. Hopes of new business wins and the Recovery and Resilience Plan underpinned positive sentiment. However, when put into a historical context, the degree of optimism was subdued.

On the jobs front, increased workloads led firms to add to their payroll numbers in March, stretching the current run of growth to seven months. The rise in staffing levels was only marginal, however, and coincided with a fractional drop in subcontractor usage.

Commenting on the PMI data, Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said, “The Italian construction sector rebounded in March. Following a contraction in February, Italy’s construction sector witnessed a resurgence in March, driven by an uptick in new work volumes that bolstered demand. This revival has necessitated increased employment to manage the rising workload. Business sentiment indicates that Italian construction firms are optimistic about future growth prospects. However, the corresponding index remains subdued when viewed in a historical context. The sector’s future optimism is largely fuelled by expectations surrounding the Recovery and Resilience Plan (RRP), which is anticipated to sustain construction activity until the end of 2027, when all allocated funds and loans must be accessed. So far, the growth contribution from the RRP has been modest. Rome has not managed to spend as much money as anticipated and is currently behind expectations.

“Analysing sub-sectors, residential activity experienced a slight uptick in March, but the with the index value elevated by historical standards. However, given the general slowdown this sector faces, this increase in business activity should not be overestimated. The commercial sector also contributed to the overall growth in construction activity. Civil engineering was the only sector that remained in declining territory, although the rate of decline has significantly slowed.

“Given the rise in activity, vendors sought additional input goods to meet output requirements. Consequently, input price inflation accelerated, driven by increases in raw material and energy costs. Subcontractor rates also played a key role, with the index remaining above its long-term average.”

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