IHS Markit Italy Construction PMI: Marginal Rise in Construction Activity During August

Key Findings:

• Softer increases in activity and new orders
• Employment falls at quicker rate
• Operating costs rise at fastest pace since February 2019

August data signalled a softer expansion of Italy’s construction sector, with firms recording the slowest increase in activity for four months. At the same time, the rate of new order growth eased to a marginal pace. Although strong overall, business confidence weakened to a three-month low amid concerns over the ongoing coronavirus disease 2019 (COVID-19) pandemic. Employment meanwhile declined for the second month in a row as firms maintained a cautious approach to hiring. Notably, firms faced a further sharp increase in operating expenses, with the rate of inflation accelerating to an 18-month high.

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 edged down from 51.0 in July to 50.6 in August, to signal a further increase in construction activity across Italy. That said, the rate of growth was the weakest in the current four-month sequence of expansion and only slight.

Sector data indicated that the upturn in overall activity was supported by marginal increases in residential and commercial construction activity. However, civil engineering activity continued to decline in August, and at a quicker rate than in July.

The amount of new work received by Italian construction companies rose for the third successive month in August. As was the case for activity, however, the rate of growth was only slight. Higher sales were linked to firmer demand conditions and the government’s eco bonus scheme, although there were still reports that the pandemic continued to weigh on new business volumes.

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After falling in July, Italian construction businesses raised their purchasing activity in August. The rate of growth was modest overall, and largely linked to the sustained increase in new orders and reopening of sites.

Firms maintained a cautious approach to staffing levels, with headcounts falling for the second month in a row and at a quicker rate. Panel members often linked lower payrolls to the non-replacement of voluntary leavers.

At the same time, construction companies saw a sharp increase in average input costs midway through the third quarter. Notably, the rate of inflation was the quickest seen for a year-and-a-half amid reports of higher raw material and transportation costs.

Although businesses were generally confident that construction activity would increase over the next year, concerns around the length and severity of the ongoing pandemic weighed on overall optimism. Though still strong, the degree of positive sentiment slipped to a three-month low in August. Nonetheless, the government’s eco bonus scheme remained a key source of optimism.

Annabel Fiddes, Associate Director at IHS Markit, which compiles the survey, said, “Italy’s construction sector expanded only slightly in August, with firms signalling softer rises in both activity and new work midway through the third quarter. Companies continued to report relatively subdued demand conditions and appetite for projects due to the ongoing COVID-19 pandemic and prevailing economic uncertainty. Consequently, business confidence weakened slightly in August, while firms continued to trim their staff numbers in the face of sharply rising costs.

“Nonetheless, the government’s eco bonus scheme remains a key source of optimism going forward and is expected to help support growth in the months ahead.”

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