HCOB France Construction PMI: Sector Downturn Cools Again in November

Key Findings:

• Sector mired in downturn despite
• Total Activity Index hitting one-year high
• Business confidence sinks to decade low Input costs rise at fastest pace in 11 months

France’s construction industry endured another difficult month in November, with total activity levels shrinking at a sharp pace. All three monitored types of activity saw reductions, with the residential sector at the centre of the downturn once again. Generally weak demand conditions were cited by panellists, and fears that the slump in new orders could persist led the HCOB Future Activity Index — which tracks business expectations in the year ahead — to fall to a decade low.

The headline HCOB France Construction PMI® Total Activity Index — which measures month-on-month changes in total industry activity — rose from 42.2 in October to a one-year high in November. However, posting 43.7, the index was well below the 50.0 no-change threshold, indicating another sharp reduction in total industry activity.

Of the three parts of construction monitored by the survey, the latest data revealed that the downturn was again broadbased. Housing provided the strongest drag, although the decline in residential building work slowed markedly and was at its least pronounced in a year-and-a-half. A slower decrease in activity levels was also recorded across commercial construction projects, but the extent of November’s fall was still steep nonetheless. Lastly, civil engineering work volumes saw a modest drop.

According to surveyed businesses, lower demand weighed on activity levels in November. Low calls for tender and budget freezes restricted the volume of new incoming work, panel member reports showed. Subsequently, the latest HCOB PMI data showed another sharp decline in new orders placed with French constructors, and one that was the quickest since July.

Fears that the current weak state of order books would persist led surveyed businesses to take a pessimistic view towards the 12-month outlook for activity. In fact, French constructors were their most downbeat in a decade, with 37% of the survey panel predicting lower volumes of work over the coming year.

In response to lower intakes of new orders, French construction companies tapered their purchasing activity, extending the current sequence of falling input demand to just over a year-and-a-half. Despite the sustained deterioration in company buying volumes, suppliers’ delivery times lengthened for a second consecutive month during November.

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Cost pressures facing French constructors intensified slightly during the penultimate month of 2024. That said, while the rate of input price inflation accelerated to an 11-month high, it remained weaker than the long-run average.

Meanwhile, employment levels across the French construction industry fell during November. This marked the seventh month running that workforce numbers have declined. Redundancies and the non-replacement of leavers led staffing capacity to shrink, according to panel member reports.

Commenting on the PMI data, Dr Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank, said, “Waiting for better times. According to the HCOB PMI for November, France’s construction sector remains deep in recession, with the index showing only a slight improvement from the previous month. Sub-sector indices all rose, with that for the residential sector making the most significant jump, but it continues to signal a substantial decline in house building. If the upward trend of the past few months continues, civil engineering activity could be the first to recover from the recession, as its index is the one that’s closest to the 50.0 mark.

“Prices are rising despite weak demand. The French construction sector continues to see increasing input prices, although inflation remains well below the historical average. Interestingly, subcontractor prices fell once again, albeit unsurprisingly given demand for their services has been declining since late in 2022. French construction companies also reported that they believe the quality of subcontractor work has declined.

“The outlook is fraught with uncertainties. Order intakes at French construction companies plummeted dramatically, preventing large employment waves and instead leading to layoffs. Activity expectations for the next twelve months fell to a ten-year low in November. Given the significant political uncertainties stemming from Paris, companies lack planning security. This dire situation is unlikely to change by early 2025 and support from the political sphere seems unlikely.”

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