IHS Markit France Construction PMI®: Construction Activity Falls Further Despite Some Sites Reopening

….. some sites reopening following the coronavirus disease 2019 (COVID19) lockdown, and was driven by a continued decline in new business. Consequently, firms pared back both staff numbers and purchasing activity at a sharp pace.

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 32.4 in May, up from 3.8 in April. The latest reading pointed to another marked decline in French construction activity, albeit one that was substantially slower than in April. Despite some reports of construction sites reopening, panellists continued to suggest that the coronavirus pandemic was suppressing demand conditions.

At the sub-sector level, the fall in activity was broad-based during May. The weakest performance was seen in commercial projects, where activity fell sharply for the third month in a row. However, there were also marked contractions in home building and civil engineering work, with the latter posting the softest rate of decline.

A key factor behind the further decline in overall construction activity was another steep contraction in new business during May. Although the rate of decrease eased to the softest for three months, it remained among the quickest since data collection began in September 2000. Anecdotal evidence indicated that firms’ clients were hesitant to commit to future projects amid coronavirus uncertainty.

In line with softer inflows of new work, French construction firms continued to reduce staff numbers midway through the second quarter. Moreover, despite easing from April’s survey record, the rate of workforce contraction remained sharp.

Another fall in new business also led to a further decrease in purchasing activity across the French construction sector. Input buying has now fallen in each of the past three months. The pace of decline decelerated from April, but was slightly quicker than the marked contraction registered in March.

On the supply side, input delivery times continued to lengthen sharply during May. Panel members cited shortages of some goods amid increased demand with sites reopening and constrained supply as many input producers remained closed.

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Consequently, input prices faced by French construction firms continued to rise. In fact, the rate of inflation accelerated to the quickest for three months and was solid overall.

Finally, firms remained pessimistic towards the one-year business outlook amid fears of a prolonged economic downturn. However, the degree of negativity eased from April.

Eliot Kerr, Economist at IHS Markit, which compiles the survey, said, “The further reduction in activity despite some sites reopening suggests that firms are now struggling because of the slump in demand caused by the coronavirus outbreak. New business continued to fall at a marked pace, and although the pace of decline eased, we are unlikely to see a prolonged recovery until there is more clarity on a vaccine against the disease. Going forward, we can expect a trend towards stabilisation in the French construction activity, but there is likely to be volatility along the way.”

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