HCOB France Construction PMI: Growth Expectations at Their Weakest Since April 2020 as Activity Shrinks Sharply

Key Findings:

• French construction sector remains mired in deep downturn
• Residential construction the principal drag on activity
• Firms at their most pessimistic since April 2020

According to the latest HCOB PMI® data, France’s construction sector endured another challenging month as new orders fell sharply and activity levels remained in deep contraction territory. Residential and commercial building work declined markedly, although civil engineering activity rose marginally.

Looking ahead, French building firms displayed a considerable degree of pessimism towards the outlook for activity, as expectations slumped to their weakest since April 2020.

The headline HCOB France Construction PMI Total Activity Index — which measures month-on-month changes in total industry activity — registered 42.6 in December, down from 44.6 in November to signal an accelerated rate of reduction in building work across France. Overall, the latest sub-50.0 reading in the headline index was the nineteenth in as many months, signalling a sustained downturn in the construction sector.

According to activity data split by type, December survey data showed further decreases in both residential and commercial activity. In line with most of the months seen in 2023, home building was the main area of weakness, although the fall in commercial construction was the steepest for three years.

Civil engineering bucked the broader industry trend, with activity levels increasing for the first time since the start of 2023.

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Construction work was restricted by builders’ order books, which contracted sharply during December. This was despite the rate of decline easing to its softest in four months. Generally subdued demand conditions were noted as a reason for lower new project wins, according to anecdotal evidence.

In response to lower levels of incoming new work, French construction companies reduced their purchases of inputs at the end of the year, extending the current period of decline in buying activity to eight months.

Retrenchment was also seen in jobs data, with employment numbers shrinking for a tenth successive month. Staffing capacity was lowered via the non-replacement of leavers, according to firms.

That said, companies were unable to achieve a reduction in their operating expenses. The rate of input cost inflation was weaker than that seen across the survey on average, but edged up to a three-month high.

Signs of weakness were also apparent in indices relating to subcontractors, as their usage fell and availability increased amid a sustained drop in construction sector activity levels. Following three years of increases, subcontractor rates stabilised in December.

Looking ahead, December survey data showed a considerable worsening in firms’ expectations, with pessimism towards the outlook rising to its strongest level since April 2020. Fears of a protracted slump in orders reportedly drove downbeat projections.

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