Euro area’s construction firms’ August activity declines for first time in nearly three years

Construction firms in the euro area recorded their first decline in activity since October 2016 in August. The IHS Markit euro area construction PMI index dropped to 49.1 from July’s 50.6, hinting at the first contraction in euro area construction activity for close to three years. The marginal reduction was driven by a strong fall in Germany and a moderate decline in Italy. In the meantime, activity in France grew at the most rapid rate since December 2018.

Sub-sector data showed a widespread fall midway through the third quarter. Homebuilding dropped at the most rapid rate, followed by civil engineering work and commercial activity respectively. However, each of the contractions were modest overall.

Similarly, new orders place with construction companies in the currency bloc dropped in the month. The pace of fall was the most rapid since October 2016. The sharp contraction in Germany contrasted with growth in France and Italy. In the meantime, companies in the euro area construction sector continued to increase their staff numbers in August, extending the current sequence of workforce growth to just more than two-and-a-half years. The pace of job creation slowed down to the softest in three months, but was modest overall.

Meanwhile, input prices paid by euro area construction companies surged midway through the third quarter. However, the pace of inflation slowed to the weakest for almost three years. National data showed a slower rise in cost burdens in each of the currency area’s three largest economies. Purchasing activity at building companies in the euro area rose further in August; however, the pace of growth slowed to the slowest since January 2017. National data hinted at a weaker rise in France and reductions in both Germany and Italy.

Capacity pressures remained evident at suppliers in the euro area construction sector, as average lead times lengthened further in August. However, vendor performance dropped to the least extent for 16 months. Euro area building firms maintained their optimism towards the one-year business outlook in August, but the degree of positivity slowed to the softest in nearly three years. Sentiment was lower in each of the euro area’s “big three”.