HCOB Italy Construction PMI: Activity and New Orders Rise at Strong and Accelerated Rates in December

Key Findings:

• Growth of activity hits 20-month high in December
• Italy’s recovery and resilience plan supports a rise in new business
• The end to bonuses fails to dampen firms’ confidence regarding 2024

The Italian construction sector showed continued signs of recovery in December, as improvements in activity and new orders were registered again, completing a full quarter of growth at the end of 2023. Furthermore, the latest rise in output was strong and the fastest in 20 months. Customer demand continued to pick up in December, owing to the recovery and resilience plan (PNRR). The increase in new orders was strong, having accelerated to the sharpest in 19 months. Despite the impending closure of the superbonus scheme, companies nevertheless remained confident that output would rise over 2024. The transition to greener energy was expected to lead to a rise in output over the coming year.

The headline HCOB Italy Construction Purchasing Managers’ IndexTM (PMI®) – which measures month-on-month changes in total industry activity – rose from 52.9 in November to 55.2 in December, to signal a sustained increase in activity across the sector. As a result, firms registered a rise in activity in each month of the fourth quarter. Furthermore, the rate of growth in December was the quickest seen since April 2022. According to anecdotal evidence, the latest rise in activity was largely caused by both the National Recovery and Resilience Plan and the superbonus, as firms raced to complete orders before the imminent closure.

At the sector level, all three sub-categories registered a rise in activity, for the second time in 2023. The commercial sector was the best performing, recording a strong rise that was the fastest in 21 months. Renewed growth was signalled for work on civil engineering projects, as the rate of expansion posted a near two-year record. The housing sector was the worst performing, but nevertheless registered the fastest increase in activity in 19 months.

The recent rise in activity was accompanied by an improvement to client demand in December. This was mainly driven by new PNRR contracts. Furthermore, the rate of growth was the most pronounced since May 2022 and strong overall.

Meanwhile, Italian construction companies continued to take on new workers during the final month of the year, thereby extending the current sequence of job creation to 14 months. Firms reportedly raised employment levels given the increase in order numbers, with staff largely hired on a full-time basis. The rate of increase in payroll numbers recorded a 22-month high and was solid overall. The increase in demand also led to a fourth consecutive monthly rise in purchasing activity in December. Picking up from November, growth of input buying was strong and at its highest since May 2022.

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December saw average lead times for inputs lengthen again. This was largely a result of increased pressure at suppliers as they struggled to keep on top of superbonus demand. Furthermore, supplier performance worsened to the largest extent since February.

With that, operating expenses increased again in December. According to firms, input costs were raised during a price list revision at suppliers. Although steep and a ten-month high, input price inflation remained below the historic trend.

Looking ahead, firms remained confident in an output rise over 2024, with the level of positive sentiment the most pronounced in four months. Constructors often linked optimism to the introduction of new tenders, in particular regarding the transition to greener energy. That said, when compared to the historic trend, confidence remained subdued as firms expressed concerns surrounding the closure of the superbonus scheme.

Commenting on the PMI data, Dr Tariq Kamal Chaudhry, Economist at Hamburg Commercial Bank, said, “The Italian construction industry is currently experiencing a solid boost. The HCOB PMI has surged to a robust 55.2 index points in December. The whole scenario is further fuelled by the approved access to funds from the EU Next Generation Programme allocated to Italy. The only drawback: prices have continued to rise significantly.

“Growth in the construction industry is cross-sectoral. In addition to residential and commercial construction, civil engineering is now also experiencing a clear upswing. Anecdotal evidence suggests that the recent surge in activity can be attributed to both the EU Next Generation Programme and the Superbonus, as companies rushed to finalise contracts before the impending shutdown.

“The positive trend in the construction sector doesn’t seem to be just a snapshot. The high pace at which construction companies are hiring speaks to a sustainable boost. The job growth rate was the strongest since February 2022, signalling overall solidity.

“The high demand in the Italian construction industry is unique compared to other major European states. The curse of higher demand comes with elevated prices. The significant price hikes in inputs and for subcontractors persist as constant companions. The prospect of the remaining nearly 100 billion USD from the EU Next Generation Programme ensures a growing influx of new contracts and an uptick in future activity expectations.”

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