December PMI® data pointed to a sharper contraction in French construction sector activity, as demand conditions continued to soften due to the coronavirus disease 2019 (COVID-19) pandemic. The reduction in output saw firms cut both their staff numbers and input buying at a quicker pace. Meanwhile, despite remaining negative overall, sentiment towards the 12-month business outlook was the highest for five months.
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 fractionally to 40.5 in December, down from 42.8 in November. The latest reading pointed to another marked decrease in French construction activity, with the rate of decline the quickest since May.
Underlying data revealed sharp contractions across each of the three monitored sub-sectors. Civil engineering was the strongest performer, despite activity falling for the fifth month in a row and at the sharpest rate since May. Work undertaken on commercial projects fell at the fastest pace, while home building declined for the tenth month in succession.
The latest contraction in overall activity came amid another marked deterioration in demand conditions. New work has now fallen in each of the past 11 months. Panellists continued to comment that the COVID-19 pandemic was a key factor behind the decline. That said, in the latest survey period, the rate of reduction eased for the first time since August.
In response to lower activity levels, French construction companies cut their staff numbers in December. The result extended the current sequence of job shedding to three months. Moreover, the rate of decline accelerated to the quickest since May and was solid overall.
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Similar to the trend for employment, firms recorded another fall in purchasing activity in the final month of 2020. Notably, the rate of reduction was the sharpest for seven months. Input buying in the French construction sector has now fallen in each month since July.
On the supply-side, input delivery times continued to lengthen during December, extending the current run that began in February 2018. Moreover, the rate at which vendor performance deteriorated was the sharpest for four months. Anecdotal evidence suggested that delays were linked to shortages of some products.
Meanwhile, input prices continued to increase. In fact, the rate of cost inflation accelerated to the quickest since August. Input prices have now risen in each month since April 2016.
Finally, construction companies remained pessimistic regarding the 12-month outlook for activity. Some panellists commented that they expect the number of calls to tender to remain subdued. That said, sentiment reached the highest level since July.
Eliot Kerr, Economist at IHS Markit, which compiles the survey, said, “The latest release of PMI data revealed more pain for the French construction sector, as the coronavirus-related decline in activity continued in December. Aside from a brief rebound in June, output has fallen in each month since the escalation of the pandemic in March. Moreover, the rate of contraction accelerated to the quickest since May.
“At the sub-sector level, the downturn was broad-based, with each of the three monitored market segments registering sharp reductions in activity. The results highlight the widespread effect that the virus is continuing to have on the sector.
“There was, however, an improved reading for sentiment regarding future activity, with the respective index rising to a five-month high. That said, firms were still pessimistic overall amid expectations for demand conditions to remain subdued.”
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