6th October 2020

Key Findings:

Headline Total Activity Index hits three-month high of 51.2
New orders rise at quickest rate since October 2019
Job cuts continue for third month running

Growth of Italy’s construction sector continued in September, with total activity rising for the fifth month running and at the quickest rate since June. The latest expansion was supported by a further rise in the volume of new orders, the quickest since October 2019, with respondents linking the uptick in both activity and new business to improved demand conditions. Nonetheless, Italian construction companies remained cautious with regards to hiring in September, as staffing levels fell for the third month running. Job shedding eased to only a mild pace, however, with panellists in some segments mentioning they had filled vacancies amid higher workloads.

The headline figure from the survey is the IHS Markit Italy Construction Total Activity Index. This is a diffusion index that tracks changes in the total volume of construction activity compared with one month previously, and is adjusted for seasonal variations.

The headline index rose from 50.6 in August to 51.2 in September and signalled the quickest expansion in total construction activity since June. That said, the rate of increase was only modest overall.

At the sub-sector level, growth was driven entirely by residential construction, which reported the fastest increase in activity since April 2019. Meanwhile, civil engineering activity was broadly stable on the month, while commercial construction activity dipped back into contraction territory.

Overall growth was supported by a fourth consecutive increase in new orders at Italian construction companies during September, amid reports of improved client demand. The rate of expansion was the quickest since October 2019, but only mild.

Nonetheless, firms continued to reduce their workforce numbers during the latest survey period, linked primarily to the non-replacement of leavers. That said, job shedding eased to a mild pace, with anecdotal evidence indicating that some firms were taking on additional staff to cope with higher workloads.

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Amid improved demand conditions, and in preparation for an anticipated rise in workloads, construction firms across Italy increased their purchasing activity for the second month running in September. As a result, there was further pressure on capacity at suppliers, with lead times lengthening to a greater extent than in August. Reports of delays were well down on the levels reached in the spring, however.

On the price front, average input costs rose further in September. The rate of increase was the slowest in the current four-month sequence of inflation, but still moderate.

Looking ahead, Italian constructors signalled a higher degree of confidence regarding the 12-month outlook for activity in September. Optimism was linked to improved demand conditions and, more widely, the government eco bonus scheme.

Lewis Cooper, Economist at IHS Markit, which compiles the survey, said, “September data highlighted quicker growth of Italy’s construction sector, with total activity rising at the fastest pace since June amid a further modest uptick in inflows of new business. At the sector level, gains in total activity came almost entirely from housing construction, although civil engineering activity approached stabilisation in September.

“Construction firms continued to cut their workforces, mostly linked to the non-replacement of leavers. Job shedding was less widespread in September, however, with some respondents reporting a rebound in hiring as order books picked up.

“Positive news came again from business sentiment, with the 12-month outlook for activity strengthening. The government’s eco bonus scheme was overwhelmingly cited as the main reason to be confident, and it is clear that the scheme has provided a real lifeline, and a boost, to get the sector back on track following the unprecedented drop of activity in the spring, at the height of the pandemic.”

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