The outlook “remains bleak” for the Eurozone construction sector, as construction activity started the year in a slump, an industry expert has said.
Dr Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, was commenting following the publication of the latest HCOB Eurozone Construction PMI data, which notes that while construction activity in the bloc remains subdued, the rate of contraction eased to its slowest pace in nearly two years.
The seasonally adjusted index tracking monthly changes in total industry activity stood at 45.4 in January, an increase from 42.9 in December.
New orders ‘continue to fall sharply’, the data showed, with negative output trends reflecting further declines in Germany and France. Italian firms, meanwhile, saw activity rise for the second month in a row, if only marginally.
Construction sector
“The Eurozone is struggling to get the construction sector moving,” Chaudhry commented. “The HCOB Construction Sector PMI improved slightly in January but remains firmly in contraction territory.
“Among the major economies, Italy is pulling the index up, while Germany and France are dragging it down. The ECB is unlikely to be pleased with the situation, having sent signals of caution in January, with President Christine Lagarde warning of a potential resurgence of inflation driven by the services sector. HCOB Economics therefore expects only two more rate cuts in the first half of the year, which is likely to negatively impact the EU construction sector, as futures markets had anticipated more significant rate cuts last year.”
Housing construction saw the steepest decline in January, according to the data, followed by commercial and civil engineering activity, however, all sectors experienced a slower rate of decline compared to December.
With new orders declining, construction firms were forced to make ‘solid cuts’ to their workforces in January, although the rate of job loss is now at the softest level for five months. Subcontractor usage also fell ‘substantially’ during the month.
‘The crisis is profound’
As Chaudry noted, the outlook for business activity in the sector remains pessimistic. “The crisis is profound,” he added. “All subsectors are contracting: residential construction, commercial construction, and civil engineering. The only advantage of the current situation is that price growth, both for inputs and subcontractors, is slow.
“The outlook remains bleak. Orders are evaporating at an alarming rate, well below the historical average. Business expectations are at rock bottom, with no sign of imminent improvement. In light of this challenging situation, construction companies continued their massive layoffs in January. The only glimmer of hope was that the rate of job cuts fell to its lowest level in five months.” Read more here.
