IHS Markit Eurozone Construction PMI®: PMI Signals Slower, but Still Steep Fall in Construction Activity

….. rose to 39.5 in May, up from a record low of 15.1 in April. The latest reading nevertheless still indicated a steep decline in construction activity across the eurozone. Survey data showed Germany and France recorded a third straight month of decreasing construction output. By contrast, Italy posted a marginal rise in construction activity.

Home building activity across the eurozone fell further in May, though the rate of decline eased considerably from April’s record. The downturn in housing construction projects was led by France and Germany. By contrast, Italy posted a rise in home building activity following a two-month period of severe declines.

Work undertaken on commercial construction projects in the eurozone likewise declined further midway through the second quarter. That said, the pace of contraction slowed markedly from a record decrease in April, though still remained steep overall. The sharpest contraction was recorded in France, followed by Germany. Again, Italy registered growth following a collapse of commercial building activity in April.

Meanwhile, eurozone civil engineering activity fell further in May, extending the current sequence of contractions to ten months. Overall, the rate of decline was substantial, but notably slower than April’s record. National data revealed a decline in civil engineering across the eurozone’s three largest economies.

The declines in construction output slowed markedly in Germany and France amid easing lockdown measures, though the rates of contraction remained steep. On the other hand, Italy recorded a marginal rise in construction activity following a collapse in April.

New business received by eurozone construction firms fell substantially further in May, though the rate of decline eased considerably from a survey record set in April. Anecdotal evidence suggested that delays in tenders and suspensions of construction activity amid the COVID-19 pandemic continued to dampen demand. At the national level, the downturn was across the board, led by France.

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Eurozone construction firms sought to reduce capacity during May as activity requirement continued to fall. Consequently, employment shrank for a third successive month. Despite easing from April, the rate of job shedding remained among the sharpest recorded since the global financial crisis of 2008/2009.

Supply chains remained under severe pressure midway through the second quarter. Despite easing from April’s survey record, delivery times still lengthened at the second-quickest rate in the series history. Anecdotal reasons suggested logistical bottlenecks, material shortages at distributors and limited supplier capacity due to social distancing rules.

Business expectations among eurozone building companies remained negative in May, as reflected by the Future Activity Index coming in below the neutral 50.0 level for a third straight month. Concerns were linked to the longer-term impact of the COVID-19 pandemic on construction activity. Germany and France both reported a negative outlook, while Italian business sentiment turned positive for the first time in three months.

Commenting on the latest survey results, Bernard Aw, Principal Economist at IHS Markit, said, “The eurozone construction sector remained mired in its deepest downturn ever seen during May, according to the latest PMI data. However, the rate of decline eased considerably as restrictions on business operations and workers were relaxed. In fact, Italy posted a mild rise in construction output, though Germany and France still recorded declines, albeit at much slower rates.

“New orders continued to decline, showing the extent to which demand for construction services remained deeply impacted by the COVID-19 pandemic. As a result of falling sales, firms continued to cut back purchasing activity, employment and the use of sub-contractors.

“The outlook remained gloomy, with concerns about the longer-term impact of COVID-19 weighing heavily on business sentiment.”

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