IHS Markit Eurozone Construction PMI: Renewed Expansion in Activity

Key Findings:

• Activity growth quickest since February 2020
• Severe supply chain disruption leads to rapid rise in cost burdens
• Business sentiment eases to six-month low

The IHS Markit Eurozone Construction PMI® is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 650 construction firms in the eurozone. The headline figure is the Total Activity Index, which tracks changes in the total volume of construction activity compared with one month previously.

The IHS Markit Eurozone Construction Total Activity Index rose from 50.0 in September to 51.2 in October, indicating a modest expansion in construction activity. The increase was the first recorded since June and the sharpest since the onset of the COVID-19 pandemic. Growth was commonly linked to stronger demand and increasing workloads. House building remained the strongest monitored sub-sector in the eurozone, though there was also a renewed rise in commercial construction in the latest survey period. Civil engineering work remained in contraction territory, however.

Work undertaken on housing by eurozone construction firms increased modestly in October. The expansion was the eighth in consecutive months, but the pace of growth eased to the softest since March. A sustained and robust rise in Italian homebuilding activity was partially offset by a renewed contraction in French homebuilding. German firms meanwhile signalled a third consecutive contraction at the start of the fourth quarter.

Eurozone commercial activity returned to expansion territory in the latest survey period. The increase was the first since February 2020, with the rate of growth modest overall. Both French and German firms indicated a renewed rise in commercial building, with the upturn among the former at a five-month high. This was complemented by a moderate rise in Italy, though growth eased to the softest since February.

The downturn in civil engineering activity across the eurozone continued in October, taking the current sequence of decline to 27 months. The rate of contraction was broadly unchanged from September and was solid overall. While firms in France registered a softer reduction in infrastructure activity, German firms pointed to the quickest contraction in eight months. Italian firms meanwhile signalled a third straight expansion.

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New business received by eurozone construction companies rose for the third consecutive month in October. That said, the pace of expansion slowed and was modest overall. Panellists often commented that stronger client confidence and sustained government support for the sector had boosted order books.

Employment levels among eurozone constructors increased for the fifth month in a row in October. The pace of job creation was solid overall, and the quickest since February 2020. On a national basis, the sharpest rise was seen in Italy, where workforce numbers rose at the quickest pace since July 2001.

Supply-chain disruption remained widespread across the eurozone’s largest economies in October, as supplier delivery times continued to lengthen rapidly. The latest extension in lead times was softer than that seen in September, though remained among the most severe in the history of the survey.

Average cost burdens faced by eurozone constructors increased at a substantial pace during October. The rate of cost inflation accelerated for the first time in three months and was close to record highs.

Eurozone construction companies signalled strong optimism regarding the year-ahead outlook for activity in October, though confidence eased to a six-month low. Both Italian and French firms indicated strong, yet softer confidence in October, with the former at the lowest level in 2021 so far. German constructors remained pessimistic, however.

Commenting on the latest results, Usamah Bhatti, Economist at IHS Markit, said, “Eurozone construction companies reported a renewed uptick in activity at the start of the fourth quarter. Activity rose at the quickest pace since February 2020, as new orders expanded for the third month running. However, the rate of growth in incoming business eased amid severe price pressures and material shortages. Notably, delays in sourcing and receiving raw materials intensified price pressures among eurozone construction firms, as average operating costs rose at a substantial rate. Companies remained strongly optimistic about the year-ahead outlook for activity, with confidence underpinned by hopes that pent-up demand would boost activity once the pandemic and supply-chain pressures recede completely. However, the level of positive sentiment eased to the softest since April amid concerns that price and material pressures would remain well beyond the current outlook. By country, Italy saw a sustained and quicker rise in construction activity, while there was also a renewed increase in France. German firms noted the twentieth fall in a row, though the rate of decline was the softest recorded in 14 months.”

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