S&P Global Eurozone Construction PMI: Activity Falls at Sharpest Rate for Three Months

Key Findings:

• Sharp downturn in activity, led by Germany
• New orders fall at fastest pace in 2023 so far
• Input prices rise at slowest rate since December 2020

The S&P Global Eurozone Construction PMI Total Activity Index fell from 47.6 in February to 45.0 in March, indicating an eleventh consecutive monthly contraction in activity levels across the eurozone construction sector. The decline was the strongest seen in 2023 to date and sharp overall. Germany (42.9) led the downturn, followed by France (45.3) and Italy (47.4). At the sector level, the decline in construction activity in the eurozone was led by housing, followed by civil engineering and commercial activity.

The S&P Global Eurozone Construction PMI Total Activity Index fell from 47.6 in February to 45.0 in March, indicating an eleventh consecutive monthly contraction in activity levels across the eurozone construction sector. The decline was the strongest seen in 2023 to date and sharp overall. Germany (42.9) led the downturn, followed by France (45.3) and Italy (47.4). At the sector level, the decline in construction activity in the eurozone was led by housing, followed by civil engineering and commercial activity.

Eurozone constructors registered an eleventh consecutive fall in home building, which was the worst performing sector in March. Moreover, the latest contraction was sharp overall and the steepest for three months. Germany led the reduction with the strongest drop since December.

Commercial construction activity dropped further at the end of the first quarter, extending the current sequence to one year. The rate of decline was solid and the strongest since last December. All three monitored regions in the bloc saw a steeper rate of reduction, with the sharpest seen in Germany.

Work undertaken on civil engineering projects across the eurozone decreased further during March, and at a stronger pace. Germany saw a renewed decline that was the steepest of the monitored regions, followed by the fastest drop at Italian constructors for six months.

The amount of new business received by eurozone construction companies decreased at the end of the first quarter. The latest reduction extended the current sequence to one year and was the strongest for three months. Data broken down by country signalled that the latest downturn stemmed from rapid declines in orders placed with German and French construction firms.

Workforce numbers across the eurozone construction sector declined for the eleventh time in the past 12 months in March. The rate of job shedding quickened from February and was the strongest recorded since last September.

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Latest data indicated a further deterioration in vendor performance across the eurozone construction sector. That said, the rate of deterioration was the weakest recorded since October 2019. Both French and Italian firms recorded notably softer lead times than much of the past two years, while Germany saw a shortening in lead times for the first time since September 2014.

As has been the case for the past seven years, average cost burdens faced by eurozone construction firms rose further in March. The rate of input cost inflation fell below the long-run average, however, and was the softest recorded since December 2020. The rise in input costs was broadbased, although all three monitored countries signalled a softer rate of inflation.

The seasonally adjusted Quantity of Purchases Index posted below the neutral 50.0 threshold in March, pointing to a tenth consecutive fall in buying activity at eurozone construction firms. Leading the downturn was the strongest decline in purchasing activity at German firms since April 2020.

Overall sentiment among eurozone construction companies remained downbeat at the end of the first quarter of the year. The degree of pessimism was stronger than that seen in February and was sharp overall. Nationally, German firms were the most pessimistic, while French companies reported negative sentiment regarding future activity for the first time in three months.

Commenting on the latest results, Usamah Bhatti, Economist at S&P Global Market Intelligence, said, “The eurozone’s construction sector fell deeper into contraction territory at the end of the first quarter of 2023. There were steep and strengthened reductions in both activity and new order volumes during March that were the fastest seen in the year-to-date. On a more positive note, firms commented on the softening impact higher prices, as cost burdens rose at the slowest pace since December 2020. This in part was the result of easing pressure on construction supply chains, as the average time taken for inputs to be delivered lengthened to the smallest degree since October 2019, with German firms recording a shortening of delivery times for the first time since September 2014.

“Overall, business sentiment among eurozone constructors remained deeply pessimistic in the latest survey period amid concerns surrounding demand weakness the ongoing cost of living crisis.”

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