Key Findings:

  • Decline reported in each of the three broad segments
  • Noticeably slower growth of new work
  • Lead times lengthen to greatest extent since May

Latest data PMI® signalled a setback for the Italian construction sector. Total activity declined for the first time since April, with the downturn broad-based across the three monitored segments, amid a noticeably softer uptick in inflows of new work. Supply chain disruptions worsened, with lead times for inputs lengthening to the greatest extent since May amid reports of shortages and logistical issues arising from the coronavirus disease 2019 (COVID-19) pandemic.

The headline figure from the survey is the IHS Markit Italy Construction Total Activity Index. This is a diffusion index that tracks changes in the total volume of construction activity compared with one month previously, and is adjusted for seasonal variations.

The headline index fell from 51.2 in September, dropping below the crucial 50.0 threshold, to register 48.1 in October and signal a renewed contraction in Italian construction activity. Panellists attributed the fall to the COVID-19 pandemic. The rate of decline was only mild, however, and much less severe than those seen in March and April.

At the sub-sector level, the reduction in activity was broadbased. Commercial activity registered the fastest contraction, with the fall in housing activity being the weakest.

A much slower increase in inflows of new work also weighed on the performance of the sector in October. Where an expansion was recorded, this was linked to the government’s ecobonus and superbonus schemes. Some respondents noted weak sales due to COVID-19, however.

Meanwhile, Italian construction firms pared back on purchases in October. Buying activity fell for the first time since July, albeit marginally. Shortages and transport delays lead to a further lengthening of lead times, however, with the latest deterioration in vendor performance the sharpest for five months.

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At the same time, panellists linked shortages, price hikes for fuel and plastics, and higher staff costs to another round of cost inflation. Input prices rose at a quicker rate than in September and solidly overall. Higher prices were also charged by sub-contractors during October. The sharp rate of inflation was the fastest since September 2008.

Despite lower activity requirements, employment in the Italian construction sector rose for the first time since June. The rate of job creation was only fractional, however, with some firms noting further redundancies and lay-offs due to still muted sales. Meanwhile, building companies signalled a further decline in their usage of sub-contractions.

Looking ahead, the 12-month outlook remained positive during October. Construction firms overwhelmingly attributed their optimism to the government ecobonus and superbonus schemes. Sentiment was elevated in the context of the long-run series history, despite moderating slightly from September.

Lewis Cooper, Economist at IHS Markit, which compiles the survey, said, “Italy’s construction sector began the fourth quarter on a noticeably weaker footing. October data highlighted a renewed decline in total construction activity amid reports that projects were being delayed amid heightened uncertainty, with the fall broad-based across each of the three monitored broad segments. Inflows of new work did rise, but at a much softer rate than in September.

“Nonetheless, the government ecobonus and superbonus schemes provided a key source of optimism across the sector. The 12-month outlook remained robust, although sentiment did moderate slightly on the month.

“But, restrictions to tackle the pandemic are being tightened amid a “second wave” of COVID-19 cases in Italy and across Europe, with the likelihood of a national lockdown increasing. Measures will further supress client demand, and if rules mean construction sites are closed, the already wavering recovery will likely grind to a halt until such restrictions are loosened.”

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