4th July 2025

Key findings:

Decline in activity fastest since March
New orders continue to fall markedly
Renewed pessimism among construction firms regarding outlook

The eurozone construction sector recorded a further decline in activity at the end of the second quarter, with the rate of contraction strengthening compared to that seen in May, according to the latest HCOB PMI® survey data. A sharp decrease in output was driven by a steep reduction in new orders, with downturns quickening in the housing and commercial sectors. The civil engineering sector bucked the wider trend to register the first expansion in over three years. Companies in the currency bloc remained in retrenchment mode, as employment and input buying were reduced again while businesses registered renewed pessimism regarding the outlook for output over the coming 12 months.

Cost pressures, meanwhile, edged higher during June to reach the most pronounced for a year-and-a-half.

The HCOB Eurozone Construction PMI Total Activity Index — a seasonally adjusted index tracking monthly changes in total industry activity — fell from 45.6 to May to 45.2 in June. The latest data signalled a steep drop in output across the sector, marking the most pronounced decline in three months.

Contractions in construction activity were observed across Germany and France, with the latter seeing the faster decline. The downturn gained momentum and remained steep in Germany. Italian companies registered growth for the fourth month running, albeit at a marginal rate.

At the sector level the overall downturn stemmed from steeper reductions in the housing and commercial segments. The residential sector remained the worst performer in June, while commercial activity fell at the fastest pace in four months. More positively, civil engineering work expanded for the first time March 2022 and rose in all three monitored economies.

Demand conditions at eurozone construction firms deteriorated further in June, with the pace of contraction strengthening on the month to the most pronounced in three months. Weakness in the sales environment was evident in Germany and France, with the latter experiencing a stronger reduction than in May. Conversely, firms in Italy recorded a seventh successive monthly rise in new order intakes.

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On the price front, cost pressures faced by construction firms edged higher for the fourth month running. As a result, the rate of input price inflation reached the strongest since December 2023. The overall increase in cost burdens was led by the fastest increase in German cost burdens since February 2023. Operating expenses in France rose solidly, while Italian companies saw the softest increase for five months.

Constructors registered a stronger rise in rates charged by subcontractors in response to higher cost pressures in June, as fees increased at the quickest pace since September 2023. Although subcontractor availability continued to rise steeply, the quality of their work was adjudged to have deteriorated further, contributing another marked drop in their usage.

Lower new order inflows also led firms to reduce staffing numbers in June, extending the current period of job shedding to 28 months. The rate of reduction was moderate but strengthened on the month, amid an accelerated fall in the French construction sector. German companies recorded a softer, albeit solid decline in headcounts, while Italy registered the strongest uptick since March 2024.

Input buying at eurozone construction firms declined again, taking the current contraction sequence to just over three years. Of the three monitored economies, France and Germany recorded sharp and accelerated decreases in purchasing activity. Firms in Italy meanwhile recorded a renewed uptick in input buying.

Despite muted demand for inputs, average lead times were broadly unchanged on the month at the end of the second quarter. A sharp deterioration in Italy was accompanied by a renewed lengthening in lead times in France. This was partially offset by a sustained improvement in vendor performance at German firms, however.

Construction firms in the eurozone registered renewed pessimism about their activity outlook for the coming year, as they foresaw a drop-in overall work. The degree of negative sentiment was only modest however, and among the softest seen over the past year. Expectations among Italian firms were the most upbeat in 13 months, contrasting with renewed pessimism in Germany and a stronger negative outlook among French constructors.

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