6th October 2020

Key Findings:

Solid, albeit softer, contraction in activity
Faster drop in new orders
Sentiment slumps further

September PMI® data revealed a third successive monthly reduction in activity across the French construction sector. The result came amid a quicker decline in new business, which saw firms cut purchasing activity at the quickest rate for four months. Meanwhile, employment rose for the third month running, despite sentiment towards the one-year business outlook being negative and the lowest since June.

The headline France Construction Purchasing Managers’ Index® (PMI®) – 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 – rose to 47.3 in September, up from 46.0 in August. The latest reading pointed to a further contraction in French construction activity, albeit one that was softer than registered in the previous survey period. Anecdotal evidence suggested that the downturn was driven by softening demand conditions related to the recent spike in coronavirus disease 2019 (COVID-19) cases.

At the sub-sector level, the contraction in activity was broadbased. Of the three monitored categories, civil engineering firms recorded the sharpest reduction and their quickest for four months. Meanwhile, home builders posted a solid decline and work undertaken on commercial projects fell marginally.

New business received by French construction companies fell for the eighth month in a row during September. Moreover, the rate of decline accelerated for the first time in five months and was sharp overall. Some panellists commented that their clients had postponed anticipated projects due to the recent rise in COVID-19 infections.

In line with falling new orders, construction businesses cut back their purchasing activity at the end of the third quarter. The result extended the current sequence of reduction to three months. Moreover, the rate of decrease accelerated to the fastest since May.

Although demand conditions continued to soften, French construction firms hired additional workers during September. The rate of increase was little-changed from August and moderate overall.

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On the cost front, input prices rose sharply, but the rate of inflation eased for the first time since April. When explaining higher costs, panellists mentioned increased expenditure on hygiene products.

Construction companies in France reduced their usage of subcontractors in September. Meanwhile, there was a decline in sub-contractor availability and an increase in rates that they charged.

Looking forward, sentiment towards the 12-month business outlook was the weakest for three months. Pessimism was driven by expectations of a prolonged downturn in demand conditions due to COVID-19.

Eliot Kerr, Economist at IHS Markit, which compiles the survey, said, “Latest PMI data for the French construction sector revealed disappointing results during September. Following an initial rebound in June, activity has now fallen in each of the past three months, and although the rate of contraction eased in latest survey period, it was still solid overall.

“Forward looking data did not look positive either, with new orders continuing to decline and sentiment weakening for the second month running.

“One area from which some optimism could be gleaned was the continued rise in employment. However, with infection rates rising and the risk of tighter restriction looming large, there is no guarantee that this upward trend will continue.”

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