HCOB Italy Construction PMI: First Rise in New Orders in Three Months as Activity Moves Towards Stabilisation

Key Findings:

• Total Activity Index nears 50.0 no-change mark at 49.8
• Fresh rise in new orders following back-to-back declines
• Cost pressures ease to lowest in over five years

The Italian construction sector ended the third quarter on a somewhat more stable footing, seeing a fresh rise in new orders and sustained jobs growth. Concurrently, activity, although still just inside negative territory, nearly stabilised after having signalled moderate declines in recent months. The outlook, however, remains uncertain, as confidence toward future activity dipped to its lowest level in just over a year.

Purchasing activity and staff increased in tandem at similarly modest rates. Meanwhile, firms faced noticeably less marked pressure on expenses, with the rate of inflation its lowest in over five years.

At 49.8, the headline HCOB Italy Construction PMI® Total Activity Index — which measures month-on-month changes in total industry activity — moved towards the 50.0 mark of stabilisation. The reading was up from August’s one-year low of 47.7 and signalled the least marked drop in output in three months.

On one hand, some firms noted that bureaucracy had restricted activity, but others saw an increase linked to improved sales.

There were mixed performances at the sub-sector level. Housing was the only one of the three categories to see a rise in output, albeit one that was only fractional. Commercial and civil engineering both recorded declines, with the latter posting the stronger contraction of the two.

Construction firms across Italy saw an improvement in demand conditions in September, with new orders rising for the first time in three months. Survey respondents linked stronger inflows of new work to greater customer interest and the winning of public tenders. The pick-up in sales was only slight, however.

In support of increased workloads, companies continued to add to their payroll numbers in September. The latest increase in net employment was the thirteenth in successive months, albeit only slight. At the same time, firms continued to show reluctance towards the usage of subcontractors. The rate of decline was softer than in August, however.

The trend for procurement activity continued to follow closely that of orders having also risen for the first time in three months. Panellists often linked the rise in buying activity to site openings and new order intakes.

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Meanwhile, there were ongoing signs that supply chains were still under pressures in September. Average lead times on the delivery of inputs increased again, stretching the trend of decline to exactly a year.

Although Italian constructors paid more for their inputs, the rate of inflation moderated to its least pronounced in over five years. The latest increase was also much weaker than the long-run average. Where higher expenses were reported, firms noted paying more for raw materials and energy as well as upward pressure from tariffs.

Looking ahead, although firms retained a positive outlook for activity over the coming year, sentiment deteriorated to its lowest level in 13 months. Qualitative evidence highlighted site openings and new business inflows as reasons behind upbeat forecasts, while uncertainty around tax bonuses was noted as a key concern.

Commenting on the PMI data, Nils Müller, Junior Economist at Hamburg Commercial Bank, said, “The Italian construction sector showed signs of stabilisation in September, with the headline PMI rising to 49.8 from August’s one-year low of 47.7. Although still marginally below the threshold of 50 that separates growth from contraction, the latest reading signals the softest decline in activity in three months and suggests the sector may be nearing a turning point.

“Sub-sector performance remained uneven. Housing activity edged back into expansion territory, making it the bestperforming segment, while commercial construction contracted at a slower pace. Civil engineering, however, saw a sharp reversal, posting the steepest decline among the three categories.

“Encouragingly, new orders returned to growth after two consecutive months of decline, which was supported by stronger customer interest and public tender wins. This modest improvement in demand translated into continued job creation, extending the current hiring streak to over a year. Purchasing activity also picked up, mirroring the trend in new orders. Cost pressures eased markedly: input price inflation fell to its lowest level in over five years, offering some relief to firms navigating a still-challenging environment.

“Despite these tentative signs of recovery, sentiment among Italian constructors weakened, with confidence falling to a 13- month low. Italian construction firms remained broadly optimistic about future activity, citing new site openings and increased workloads linked to new orders. However, 17% of firms anticipate a decline in output over the next 12 months, with uncertainty around tax bonuses weighing on expectations. Overall, September’s data suggest that while the sector is not yet out of the woods, the worst of the recent downturn may be behind it.”

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