Eurozone construction work decline slows in November but Italy worsens

Construction activity in the eurozone declined at a slightly slower pace in November, with cost developments and a shortage of skilled civil engineers one of the issues faced by the industry, according to purchasing managers' index results on Thursday.

S&P Global said the Hamburg Commercial Bank construction PMI total activity index rose to 45.4 points in November from 44.0 in October. Getting closer to the neutral 50-point mark separating growth from contraction, it indicates the pace of decline in the eurozone's construction sector decelerated.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "Cost developments remain a key problem in all three major eurozone countries. In November, these rose at an accelerated pace everywhere, which is likely in part due to the increase in diesel prices. However, the ongoing shortage of skilled civil engineers and the prices of building materials, which are rising even further from an already historically high level, are also playing a role. This is an unusual situation, as declining construction activity usually leads to falling capacity utilisation and lower input prices. The situation is unlikely to ease until the economy as a whole picks up again.

"Employment in the construction sector continues to decline. However, there are significant differences between the three major eurozone countries. In France, the decline in employment remains steady, in Italy the number of people in work is stagnating, and in Germany companies have hired more people for the first time since March 2022. The latter development is likely to be related to the surge in civil engineering activity, while France's construction sector is being weighed down by political uncertainty. Sustained broad-based hiring will only take place if the construction sector as a whole regains momentum, which is not currently foreseeable."

The German construction indicator ticked up to 45.2 points in November from 42.8 in October. Despite scepticism in the outlook, the latest data showed a mild rise in employment across Germany's construction sector in November, marking an end of continuous job shedding going back to April 2022.

Further, weak demand for building materials and products helped constrain the rate of purchasing price inflation, which remained firmly below its long-run average.

The French construction indicator rose to 43.6 points in November from 39.6 in October.

The level of work received by French construction firms continued to fall.

S&P said: "French construction firms reduced their purchases of materials midway through the fourth quarter, stretching the trend of falling buying activity to over two-and-a-half years. Staffing capacity also faced cutbacks in November. The extent to which jobs declined matched that seen in October and was therefore the joint-steepest since May 2020. Supplier issues intensified in November, despite an absence of demand pressures across the French construction sector. Average delivery times lengthened to the greatest extent February 2024."

Jonas Feldhusen, junior economist at Hamburg Commercial Bank, said: "Particularly noteworthy was the sharp rebound in the new orders index, following the significant decline in October that took it to its lowest level in over five years. We attribute this primarily to the political uncertainty that dominated the previous month, which temporarily drove up financing costs and led to postponed investment decisions. Nevertheless, the index revival should not be interpreted as a trend reversal."

Bucking the positive trend, the construction PMI for Italy fell to 48.2 points in November from the positive score of 50.7 in October.

The eurozone construction PMI features a panel of 650 construction firms in Germany, France, Italy and Ireland. The responses were collected between November 12 and 28.