The eurozone construction industry is grappling with weakening demand, leading to significant job losses and cost-cutting measures, according to a report released by S&P Global and Hamburg Commercial Bank on Tuesday.
The Construction PMI Total Activity Index, which tracks monthly changes in the sector, fell to 41.4 in July from 41.8 in June. A reading below 50 indicates a contraction in activity, highlighting ongoing struggles within the industry.
The report reveals that July saw the fastest decline in construction output in six months, driven largely by a slump in the housing market. This sector experienced its steepest reduction since April 2020, resulting in a notable drop in employment.
Norman Liebke, an economist at Hamburg Commercial Bank, commented, “In July, housing activity continued its downward trend due to weak demand, leading to further job losses as the employment situation worsened. Commercial activity also deteriorated, though the downturn in civil engineering moderated compared to June, primarily due to improvements in France.”
The pessimistic outlook spans key eurozone countries including Germany, France, and Italy. In Italy, a previously optimistic outlook driven by government subsidies has reversed with the end of the Superbonus scheme. The Superbonus was a tax incentive program aimed at promoting sustainable home renovations, but it faced criticism for inefficiency.
July marked the fourth consecutive month of declining demand for Italy’s construction sector, with the rate of decline accelerating for the second month in a row.
In France, total construction activity dropped to its lowest level since January, with job losses accelerating at the fastest pace since March. Meanwhile, Germany saw a continued decline in activity, though the rate of decrease eased for the third consecutive month.
Looking ahead, experts believe that a potential rate cut by the European Central Bank (ECB) in September is unlikely to offer substantial relief to the struggling construction sector. While interest rate cuts can generally stimulate activity by making borrowing cheaper, the ECB’s gradual approach to rate reductions and maintaining rates at relatively high levels may limit the sector’s recovery.
Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, noted, “Although looser monetary policy could eventually support the construction sector, any boost is expected to be modest. The ECB’s gradual rate cuts and high historical standards will likely provide only limited relief. Additionally, with firms facing steep declines in new orders, it is challenging to foresee a significant turnaround, as indicated by the sharp drop in the future activity PMI to a seven-month low.”
As the construction sector continues to struggle, the outlook remains uncertain with ongoing weak demand and limited prospects for immediate recovery.
