4th March 2022

Key Findings:

Building activity stagnates following renewed decline in new orders
Firms cut staffing numbers fractionally; purchasing activity growth slows
Cost pressures remain elevated amid rising energy prices

February survey data signalled an end to the French construction sector’s longest uninterrupted sequence of growth since the COVID-19 pandemic began as activity stagnated midway through the first quarter. The performance of the sector was primarily weighed down by commercial building activity, which declined at the fastest pace in six months. Elsewhere, demand for new projects slipped into contraction, while employment levels fell fractionally.

Meanwhile, cost pressures remained elevated in February, reflecting higher prices for energy and raw materials.

The France Construction Total Activity Index — which is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago — fell to 50.0 during February, signalling no change in activity from January’s levels. The headline figure was down from 52.0 and marked an end to an uninterrupted four-month sequence of growth – the longest period of successive monthly expansions since the COVID-19 pandemic began in early 2020.

Data split by the three broad monitored types of construction work showed a renewed contraction in commercial building activity during February. Residential work meanwhile stagnated, following relatively solid rates of growth on average over the previous three months. Civil engineering activity was the only category of construction work to register an expansion, with growth here accelerating to a 19-month high.

Weighing on the construction sector in February was a renewed decline in new orders. Overall, the drop in demand for new projects was the strongest since last August and a notable contrast from the solid expansion seen in January.

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As a consequence, a number of surveyed firms cut their staffing numbers during February. Latest survey data showed French construction sector employment declining, albeit only fractionally.

Nevertheless, purchasing activity continued to increase midway through the first quarter, extending the current period of upturn to six months. That said, the rate of growth eased from January as a number of panellists reportedly reduced their input buying in response to weaker demand conditions.

Meanwhile, supply chains remained under intense pressure during February, with average input lead times lengthening sharply overall. However, amid limited reports of improving stock levels for certain raw materials, the extent to which delivery times lengthened was the least severe since last August.

Cost burdens faced by French constructors continued to rise sharply. Increasing prices relating to metals, plastic, wood and energy were reported by firms.

Lastly, business confidence remained in firm positive territory, despite dipping slightly amid concerns surrounding the impact of the upcoming election period.

Commenting on the latest survey results, Joe Hayes, Senior Economist at IHS Markit, said, “February was a broadly underwhelming month from a French constructor’s perspective as survey data showed the sector stagnating. This brought an end to an encouraging uninterrupted period of growth – the best we’ve seen since the start of the pandemic in early 2020.

“Of concern will be the turn in the demand trend, which showed new orders falling in February. This, coupled with a slight drop in employment numbers, suggests the underlying trend in the sector may still be fragile.

“Supply issues remain widespread, while cost pressures are also substantial. These continue to provide notable headwinds to the sector, but anecdotal evidence suggest that some companies are already growing concerned around the upcoming election period and how this could impact their workloads.”

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