Weak demand hits Eurozone construction sector

Weak demand continued to weigh heavily on the Eurozone construction sector, a closely-watched survey showed on Tuesday, despite input price rises starting to ease.

The HCOB Eurozone Construction PMI Total Activity Index fell to 44.6 from 45.2 in April, the sharpest monthly reduction so far this year. A reading above the neutral mark of 50 indicates growth, while one below it suggests contraction.

Leading the fall was France, where activity in the construction sector fell at the steepest rate for five months. Activity has now declined consistently for a year in the country.

However, there were also similar reductions in activity in Germany - the bloc’s biggest economy - and in Italy.

All three sub-sectors also showed a broad-based contraction across the bloc, although housing activity reported the strongest fall.

The survey, which was carried out between 11 and 31 May, found that demand for new projects remained lacklustre, with new orders falling at the steepest rate so far this year.

Input prices rose at the softest pace since May 2020, however, due to easing inflationary pressures and improved supply chains.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "Higher interest rates are taking their toll, causing a further decline in construction activity.

"Highest interest rates and tighter credit conditions imposed by banks are dampening demand, while falling house prices and the limited scope for rent increases, due to the economic situation, are making a new projects less attractive for construction companies."

He concluded: "The construction sector in the Eurozone has probably not yet bottomed out. While the demand situation has deteriorated significantly, some companies were still able to profit from orders from the past. In this respect, a few more quarters of a construction recession can probably be expected."