7th January 2026

Key Findings:

Fastest declines in activity and new orders since August last year
Purchasing activity lowered, but employment up slightly
Sharp rise in cost pressures signalled

The Italian construction sector finished the year on a weaker note. Subdued demand for building work influenced activity levels, new business volumes and purchasing decisions, all of which fell at the strongest rates in four months. Moreover, the malaise remained widespread across all three contraction sub-sectors, and again most prominent in housing. Although employment was up slightly, subcontractor usage was down and cost pressures intensified. Nevertheless, confidence towards 2026 improved on the month.

The headline HCOB Italy Construction PMI® Total Activity Index — which measures month-on-month changes in total industry activity — dropped from 48.2 in November to 47.9 in December. The reading was consistent with a moderate reduction in total activity and one that was among the strongest seen across 2025, just slower than in August.

According to anecdotal evidence, lower output levels were linked to weaker demand conditions and the completion of work at sites.

For the second month in a row, all three component sub-sectors of construction contributed to the decline. The fastest reduction remained in the housing sector, while again the weakest was in commercial.

Subdued demand conditions were apparent given another reduction in the overall volume of new work placed at Italian building firms, the second in successive months. As was the case with activity, the rate of contraction was the strongest in four months. Failed tender awards and increased uncertainty across the market played a part in the latest downturn, panel member reports showed.

As a result of weaker order books and finishing up at sites, input requirements were lower and firms reduced their buying levels for a second month in a row in December. Again, the rate of contraction was the most pronounced since August last year.

Still, the rate of input price inflation rose to its highest since last May and was sharp overall, as firms reportedly paid more for raw materials and energy. That being said, cost pressures remained below the long-run trend.

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Where purchases were made, companies experienced longer lead times on average in December. Panellists noted that a shortage of raw materials and capacity pressure at vendors were factors causing delivery delays. As in October and November, the deterioration in supplier performance was modest overall.

On the jobs front, Italian construction companies continued to hire additional staff at the end of the year. The rate of jobs growth was only slight overall and broadly similar to those seen in each month since August last year. Meanwhile, the usage of subcontractors was lowered at the strongest rate in four months.

Looking ahead to the coming 12 months, Italian building firms were more confident that activity levels would rise than they were in November. Panellists expect higher output due to the opening of new sites and greater investment. Firms are also hopeful for improved demand conditions. The overall level of confidence was nevertheless subdued when put into a historical context.

Commenting on the PMI data, Nils Müller, Junior Economist at Hamburg Commercial Bank, said, “The Italian construction sector closed 2025 on a notably weaker footing, as the HCOB Italy Construction PMI slipped from 48.2 in November to 47.9 in December, signalling a moderate but accelerated contraction in activity. The downturn was broad-based, affecting all of the three monitored segments: residential building once again performed the worst, posting its sharpest decline in nearly 18 months, while commercial activity fell for the sixth time in seven months and civil engineering retreated for a fourth consecutive month.

“Underlying demand conditions remained subdued, with new orders shrinking for the second month in a row and at one of the fastest rates seen in 2025. Panellists reported failed tender awards and heightened market uncertainty as key factors behind this drop in new business, prompting firms to cut purchasing activity for a second month in a row. Supplier delays persisted, linked to raw material shortages and capacity constraints, though the deterioration was modest overall.

“Cost pressures intensified markedly in December, as input prices rose at the steepest pace since May 2025, driven by higher energy and raw material costs. Nonetheless, inflation remained below its long-run average. Meanwhile, employment continued to rise at the end of the year, however, the pace of job creation remained only slight, with firms often hiring on a mix of permanent and temporary contracts and in some cases not replacing staff leavers.

“Business confidence strengthened, as firms anticipate higher activity in 2026 supported by new site openings and investment plans. Nevertheless, optimism remains historically muted, highlighting the fragile backdrop for Italy’s construction sector as it enters the new year.”

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