S&P Global Italy Construction PMI: Sector Growth Remains Amongst Fastest on Record in March

Key Findings:

• Activity and new work rise at near-record rates
• Cost inflation hits fresh survey peak
• War in Ukraine dampens confidence to 15-month low

Construction activity across Italy continued to rise steeply in March, according to the latest PMI® data from S&P Global. Although easing sharply from February’s peak, the rate of growth remained amongst the strongest on record. New work followed a similar trend, with the expansion one of the quickest on record, despite slowing noticeably on the month. Nonetheless, the war in Ukraine dented firms’ confidence towards activity over the next year, which was the weakest since December 2020.

Less positively, cost inflation hit a fresh record high in March, amid reports of surging energy, material and transport costs.

The headline S&P Global Italy Construction Purchasing Managers’ Index® (PMI®) – which measures month-on-month changes in total industry activity – registered 62.9 in March, down from February’s all-time high of 68.5, but nonetheless indicative of one of the steepest upturns on record. Over the first quarter of 2022 as a whole, the average index reading was the highest on record.

At the sector level, residential construction again topped the growth rankings, followed by commercial and civil engineering respectively, with rates of growth among the sharpest on record in all cases. That said, each of the monitored sectors registered slower expansions.

The overall upturn was driven by further strong demand growth in March. Inflows of new work expanded for the fourteenth month running, with the rate of increase slowing from February’s peak, but nonetheless amongst the steepest on record. According to panellists, the latest rise reflected stronger demand conditions, due primarily to government tax relief schemes.

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Amid a strong pipeline of new work, constructors continued to raise their purchasing activity in March. Although the weakest for three months, the latest uplift was sharp. Stronger input buying was also linked through anecdotal evidence to efforts to build stocks amid supply problems. Indeed, vendor performance deteriorated at a sharper pace in March.

March data also pointed to sustained workforce growth among Italian construction firms, extending the current sequence to well over a year. Survey respondents attributed the latest upturn to strong client demand. The rate of job creation eased since February, but remained above the average over the current sequence and sharp by historical standards.

Firms also recorded greater subcontractor usage in March, despite rates charged increasing at the quickest rate of record. Subsequently, the availability of subcontractors decreased sharply again.

Elsewhere, average input costs rose steeply in March, amid reports of surging energy, material, and transport fees. Notably, the rate of cost inflation was unprecedented in the series history since 1999.

Looking ahead, Italian construction firms registered a steep moderation in sentiment towards activity over the next year in March, with the war in Ukraine, supply issues and inflationary pressures reportedly dampening confidence. Where companies registered optimism towards the outlook, this was attributed through anecdotal evidence to hopes of improved demand and government tax relief schemes.

Lewis Cooper, Economist at S&P Global, said, “Italy’s construction sector recorded another strong performance during March. Activity growth remained amongst the fastest on record, despite easing sharply from February’s peak. Demand conditions improved markedly again, attributed through anecdotal evidence to the government tax relief schemes, although the rate of expansion slowed on the month.

“Less positively, constructors registered an unprecedented rate of cost inflation during March, amid reports of surging material, energy and transport prices, with cost pressures also stemming from subcontractor fees, which reportedly rose at a record pace.

“Surging input costs combined with supply constraints and the war in Ukraine dampened business confidence towards activity over the coming year to a 15-month low, as companies grew increasingly concerned towards the near-term outlook.

“Nonetheless, the strong performance in March topped off a sublime first quarter performance for the sector, with the expansion in construction activity across the quarter as a whole the strongest on record, according to the PMI data.”

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