Amid ongoing coronavirus disease 2019 (COVID-19) restrictions, French construction companies recorded the quickest decline in activity for eight months during January. Meanwhile, demand conditions remained subdued, with new orders falling at a marked rate. Consequently, firms cut their staff numbers at the fastest pace since last May. On the supply-side, input delivery times continued to lengthen and cost burdens rose sharply.
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 – fell to 39.5 in January, from 40.5 in December. The latest reading pointed to the sharpest decline in French construction activity since May 2020, when firms faced tight restrictions after the initial COVID-19 lockdown.
At the sub-sector level, the contraction in activity was broadbased. The most severe downturn was seen in civil engineering, where firms registered the quickest reduction for nine months. Work on both home building and commercial projects also fell sharply, but at softer rates compared to December.
January data pointed to a further deterioration in demand conditions faced by French construction companies, as new orders continued to fall. The result extended the current run of decline to a year. Panellists often commented that the COVID-19 pandemic had reduced the number of calls for tender.
In line with another deterioration in demand conditions, construction firms continued to pare back their staff number in January. In fact, the rate of job shedding accelerated to the quickest for eight months and was marked overall.
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Similar to the trend for employment, purchasing activity fell markedly in the opening month of the year. However, the rate of decline eased from December and remained far softer than those registered during the previous COVID-19 lockdown last spring.
Meanwhile, suppliers’ delivery times continued to lengthen during January. Moreover, the rate at which vendor performance deteriorated was the sharpest for five months and marked by historical standards. Some panellists noted that additional hygiene protocols had contributed to delays.
Cost burdens faced by French construction firms rose in January, extending the current run of inflation that began in April 2016. Notably, the latest increase was the fastest since last February and sharp overall. Some survey participants noted higher steel prices when explaining a rise in costs.
Looking forward, construction companies were confident of a rise in activity during 2021. The result marked the first optimistic reading for future activity since last July. Positivity was supported by expectations of a recovery in demand conditions as vaccination programmes continue to advance.
Eliot Kerr, Economist at IHS Markit, which compiles the survey, said, “The latest PMI data suggested that French construction companies continued to struggle amid COVID-19 restrictions, as activity fell at an even quicker pace in January. In addition, there was little sign of an imminent recovery, with new business also declining at a sharper rate, prompting firms to cut staff numbers again.
“There was, however, one bright spot in the latest survey period. Sentiment towards future activity moved back into positive territory for the first time since July, with optimism supported by expectations of widespread vaccination later this year. Although that scenario is still some way off, firms will be working towards that period when demand conditions will likely improve.”
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