Key Findings:

  • Construction activity drops at quickest pace since August 2021
  • New business declines for third month in a row
  • Input price inflation remains rapid

June PMI® data revealed a renewed drop in construction activity across France, following two months of mild expansion. The fall coincided with a further decline in new business, with customer demand reportedly dampened by high prices. Though moderating slightly, the rate of input cost inflation remained substantial overall in June amid a further marked lengthening of suppliers’ delivery times.

Despite this, construction firms were at their most upbeat about the 12-month outlook for activity for nearly three years. There were hopes that stronger demand conditions would help to boost new work and activity over the months ahead. The positive outlook supported a further rise in employment across the sector.

The headline S&P Global France Construction Activity Index – which measures month-on-month changes in total industry activity – fell below the neutral 50.0 level, from 50.9 in May to 46.4 in June. This signalled the first fall in construction activity across France since March. The rate of contraction was the quickest seen for ten months and solid.

At the sub-sector level, the reduction in activity was broadbased, with residential building noting by far the steepest rate of decline. Commercial activity also fell at a quicker pace, while it marked the first fall in civil engineering activity since March.

The fresh decline in overall construction activity coincided with a sustained drop in new business in June. New orders fell modestly overall, but for the third month in a row, with some companies commenting that high costs and relatively subdued market conditions had weighed on new business.

Purchases of building materials and products in France’s construction sector meanwhile rose at a notably softer pace in June. Moreover, the latest upturn in input buying was the slowest seen in the current ten-month period of expansion and only marginal. Some firms mentioned readjusting purchasing activity due to subdued customer demand.

The time taken for purchased inputs to be delivered to French construction firms continued to increase during June. The rate at which lead times lengthened was sharp, albeit the least severe in ten months. The deterioration in supplier performance was frequently linked to stock shortages at vendors.

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Average input costs faced by French construction firms continued to increase rapidly in June, despite the rate of inflation easing further from April’s record high. Increased costs for raw materials, fuel and transport all contributed to the latest rise in expenses, according to panellists.

Although activity and new work declined at the end of the second quarter, business confidence regarding the 12-month outlook for output improved. Notably, the degree of positive sentiment strengthened to its highest for nearly three years and was above the series average. Growth forecasts were generally linked to expectations that demand conditions will recover and new projects will be pursued in the months ahead.

Strong business confidence also supported a further increase in employment across the construction sector. Though mild, the upturn extended the current run of workforce expansion to four months.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said, “June PMI data pointed to increasingly sluggish conditions across the French construction sector. The latest survey signalled a renewed and notable fall in overall construction activity, which was driven by a further drop in sales.

“Companies mentioned that high costs had deterred a number of clients from going ahead with projects, with prices data showing substantial cost pressures across the sector.

“Supply chain delays added a further squeeze on companies’ performance and prices, amid widespread reports of stock shortages at vendors.

“Some of the survey’s forward-looking indicators provided some positive news, however. Firstly, business confidence towards the one-year outlook for activity improved to its highest for nearly three years, suggesting that firms anticipate a recovery in demand in the months ahead. Secondly, companies continued to add to their workforce numbers in anticipation of improved activity. However, it will be important to see a sustained recovery in demand and cooling of price pressures before we see activity levels bounce back.”

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