6th August 2024

Key findings:

Further marked drop in new orders drives stronger output fall
Steeper decline in employment levels
Business confidence drops to lowest in 2024

The eurozone construction sector remained firmly in contraction territory in July as activity fell markedly again, according to the latest HCOB® PMI data. The rate of decrease in output quickened slightly on the month to the strongest for six months, and continued to be driven by substantial contractions in housing activity, which was once again the worst-performing of the three monitored segments. The downturn was led by weak demand conditions as evidenced by a robust decline in new business. Lower new orders sparked a further round of job shedding, as employment fell at a slightly sharper rate. Retrenchment and cost-cutting were also reflected in a steep contraction in input buying and marked reductions in subcontractor use. That said, cost burdens rose only modestly.

The HCOB Eurozone Construction PMI Total Activity Index — a seasonally adjusted index tracking monthly changes in total industry activity — posted 41.4 in July, down slightly from 41.8 in June. The latest data was indicative of a steep decrease in total output at the start of the second half of the year.

The decline in activity was driven by broad-based contractions across the three monitored economies, led by the strongest fall in France since January. Italian firms recorded the steepest decrease in nearly two years, while firms in Germany saw a substantial, albeit slightly softer decline.

The housing sector continued to weigh heavily on total output and was the worst-performing sector, recorded the most marked reduction since April 2020. Commercial activity saw the sharpest fall for six months, while civil engineering firms recorded a slower reduction in activity.

Weak demand conditions across the eurozone construction sector continued to drive the overall downturn, as new orders fell again in July. The rate of decline quickened from June and was the most marked since March. All three monitored countries registered marked falls in new business, led by Germany.

In line with new order inflows, eurozone construction firms cut their workforce numbers at the start of the third quarter. The pace of job shedding quickened slightly from June and was the second-most pronounced in 2024 so far. For the second time in three months all three largest economies saw falling employment, with German firms seeing the steepest reduction.

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Meanwhile, input costs increased modestly during July. Inflation of operating expenses picked up from June but remained well below the series average. Italy saw the sharpest rise in cost burdens, while French firms recorded a softer increase. Companies in Germany however registered a fourth consecutive fall in input costs, and one that was the strongest for nine months.

Construction companies showed further signs of retrenchment as input buying fell for the twenty-sixth successive month in July. The rate of decline was marked but eased slightly on the month. The downturn in purchasing activity was led by the sharpest fall in France for over three-and-a-half years.

In line with weak demand for inputs and lower purchasing activity, eurozone construction firms recorded another improvement in supplier performance. Lead times shortened sharply amid the second-strongest shortening in delivery times in Germany on record. Only Italian firms recorded a deterioration in vendor performance.

Eurozone construction companies remained downbeat in their expectations for output over the coming year in July. The degree of pessimism worsened from June and was the most pronounced in the year to date. Pessimism worsened in Germany and France, while Italian firms expressed the softest degree of optimism for 22 months.

Subcontractor availability improved sharply in July, amid weak demand among construction firms, while subcontractor usage fell markedly. A further month of decline in the quality of subcontractor work, as adjudged by monitored firms, was at odds with a modest increase in rates charged by them.

Commenting on the PMI data, Norman Liebke, Economist at Hamburg Commercial Bank, said, “The housing sector weighed on overall construction activity, again. In July, housing activity dropped for yet another month due to weak demand conditions, also leading to another round of job shedding as the employment situation worsened in July. Commercial activity also worsened but the downturn in the civil engineering sector softened compared to June mainly due to France.

“The downturn of the construction sector is broad-based across the countries. Some months ago, Italy was somewhat showing resilience to the overall downward trend due to the Superbonus program and other subsidies in Italy. These supports have ended, which is immediately noticeable in the HCOB PMI numbers. In France and Germany, the situation looks worse as demand weakened in both countries.

“Constructors in the Eurozone are not seeing light at the end of the tunnel. When asked about future output expectations, panellists turned to pessimism as the corresponding index fell almost six points. Pessimism worsened in Germany and France, fearing weaker demand in the upcoming twelve months while optimism softened in Italy to a 22-month low.”

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