5th October 2023

Key Findings:

Commercial activity drives latest marginal decline
Back-to-back contractions seen in new orders
Job creation continues despite subdued optimism

The Italian construction sector recorded another month of deterioration in September as declines in activity and new business were sustained. Confidence towards the outlook was maintained, although the degree of optimism fell notably when compared to August and was the lowest in seven months. Contractions in activity and demand eased, however, while job creation was sustained at an accelerated rate.

The headline HCOB Italy Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – posted 49.8 in September. While the index remained below the 50.0 no-change mark for a tenth consecutive month, it rose from 47.7 in August and signalled a deterioration in the Italian construction sector that was only fractional and the softest in the current series of contraction.

Activity broken down by type revealed renewed growth in housing and civil engineering activity, which both entered expansion territory for the first time in ten and eight months respectively. Subsequently, this indicated that the downturn in Italian construction activity was driven entirely by commercial projects, although the rate of decline came in considerably softer when compared the previous month.

Anecdotal evidence attributed the overall decline in activity during September to the continued uncertainty surrounding the Italian Superbonus, a scheme launched to improve the energy efficiency of homes through a tax relief system.

Amid broader economic weakness, new contract wins also fell moderately in September, marking back-to-back months of contraction. The rate of decrease was largely in line with August. With dampened demand conditions, purchasing activity across the Italian construction sector broadly stagnated during the latest survey period. This compared with reductions in the preceding nine months.

On the price side, rising energy costs continued to weigh on the Italian construction sector as firms reported increased transport expenses. Higher oil prices were also mentioned by some respondents.

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Nevertheless, companies continued to hire additional staff members in September. Albeit only moderate, the upturn was the quickest since May, and extended the current sequence of rising headcounts to 11 months.

Finally, although falling notably from August’s 15-month high, the Future Activity index recorded above the neutral 50.0 mark in September as panellists on average remained optimistic. The National Recovery and Resilience Plan for Italy was cited as a reason to be positive. Furthermore, other firms commonly expressed their hopes for a boost in new business over the coming year.

Commenting on the PMI data, Dr Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank, said “The Italian construction sector showed a glimmer of hope in September, with an HCOB PMI of 49.8, edging closer to growth territory. However, caution prevails as surveyed companies have restrained expectations for future activity, with new orders continuing to dwindle.

“Activity in the construction sector is clearly gaining momentum. Residential construction and civil engineering have seen improvements compared to the previous month. However, commercial activity remains the sole sub-activity index still in contraction territory.

“The resilience of employment in the Italian construction sector, amid acute skill shortages in the labor market, comes as no surprise. Hiring continued in September, reflecting the industry’s ongoing demand for personnel. While input cost increases remained below long-term averages, the rate of inflation picked up, which could potentially dampen future growth in the sector.

“Despite the current visible signs of recovery in the Italian construction sector, the outlook for a sustainable improvement appears elusive. New Orders are dwindling, and the Future Activity Index is significantly below its long-term average. Shortterm concerns loom large, with high inflation and increasing refinancing costs causing unease among companies. In the long run, businesses seem to anticipate that the boost from the NextGenerationEU program’s relief funds will likely be far smaller than initially anticipated earlier in the year.”

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