The HCOB Eurozone Construction PMI declined to 45.6 in May 2025 from 46.0 in April, indicating an accelerated contraction in construction activity across the euro area and marking one of the weakest readings in recent months.
Eurozone construction slump deepens
The downturn was broad-based, with total output and new order inflows both falling at similarly sharp rates. This persistent weakness in demand led firms to cut back further on employment and purchasing activity, as companies sought to contain costs and scale operations in line with reduced workloads.
Among the key segments, residential building continued to perform the worst, reflecting ongoing affordability challenges, tighter financing conditions, and muted consumer confidence across much of the bloc. Commercial construction also declined at a marked pace, affected by sluggish investment sentiment and uncertainty around business expansion plans. Civil engineering, often seen as a more stable area due to public infrastructure projects, also recorded a sharp drop, suggesting that fiscal constraints may be weighing on government-funded activity.
How largest economies performed
On a regional basis, the divergence in performance across the eurozone remained stark. France and Germany, the two largest economies in the currency union, were the main drags on overall performance. Both countries registered steeper contractions in output and new orders, as subdued public and private investment intersected with rising construction costs. In contrast, Italy bucked the trend, posting a third consecutive month of growth—thanks to resilient demand for infrastructure projects and ongoing stimulus measures tied to EU recovery funds. Spain, while still in contraction territory, saw a marginal easing in its rate of decline.
Price pressures intensified further in May, with input cost inflation accelerating to its highest level in 17 months. Firms reported higher prices for key building materials, energy, and labor, with suppliers increasingly passing on their own rising costs. This added strain to already-thin profit margins and raised concerns about project viability, particularly in the residential segment where cost sensitivity is high.
Despite the challenging environment, eurozone construction companies expressed cautious optimism regarding the outlook for the next 12 months. In fact, sentiment turned positive for the first time since February 2022. Hopes for interest rate cuts by the European Central Bank, improved access to financing, and the potential for an economic rebound later in the year supported the more upbeat outlook. Nevertheless, many firms remain wary of structural headwinds, including labor shortages, regulatory burdens, and the uncertain geopolitical landscape.
