Key Findings:

  • Slowest decline in activity for nine months
  • First rise in new business since January 2020
  • Sharpest rise in input costs for almost a decade

Latest PMI® data pointed to a softer contraction in French construction activity during March. The slowdown came amid the first monthly improvement in demand conditions since January 2020, which led to a further increase in employment. Meanwhile, global supply-chain issues and ongoing shortages of raw materials saw input prices rise at the quickest rate since April 2011.

The headline France Construction Purchasing Managers’ Index® (PMI®) – which is based on a single question asking respondents to report on the actual change in their total construction activity compared to one month ago – rose to 49.7 in March, up from 44.0 in February. The latest reading signalled the softest contraction in French construction activity since expansion was last recorded in June 2020. In fact, the rate of decline was only marginal overall.

At the sub-sector level, the reduction in activity was solely driven by commercial projects, where the rate of contraction accelerated and was sharp overall. Meanwhile, homebuilding activity stabilised to end a one-year sequence of decline and civil engineering work increased slightly.

The improved trend for output was underpinned by strengthening demand conditions across the French construction sector during March. Although marginal overall, the increase in new business was the first since January 2020. Panellists noted a rise in calls to tender from both public and private sector clients.

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In line with an increase in new projects, firms hired additional staff for the second month running. Moreover, the rate job creation strengthened from February and was the quickest since September.

March data also revealed a slight increase in purchasing activity across the French construction sector. The result marked the first monthly rise in input buying since last June. Despite signalling only a marginal expansion, the latest reading was above the historical average.

On the supply front, input delivery times continued to lengthen markedly at the end of the first quarter. Moreover, the extent to which vendor performance deteriorated was the greatest for seven months. Panellists often noted shortages of raw materials at their suppliers, as well as issues with both sea an air transportation.

The increasing scarcity of raw materials drove a further rise in input costs during March. Notably, the rate of inflation accelerated for the fifth month running to the quickest since April 2011. Anecdotal evidence indicated shortages of a range of raw materials, with steel and wood most commonly mentioned.

Finally, confidence towards the 12-month business outlook softened slightly in March. However, the degree of positivity remained historically marked, as firm looked forward to the potential relaxation of COVID-19 restrictions later this year.

Eliot Kerr, Economist at IHS Markit, which compiles the survey, said, “Although latest PMI data pointed to a further decline in French construction activity during March, the rate contraction eased to the softest in the current nine-month sequence of downturn. In fact, the latest reduction was only marginal and confined to the commercial real estate subsector as civil engineering activity rose and homebuilding stabilised. The improved reading at the aggregate level came amid a combination of strengthening demand conditions and positive expectations for the year ahead. However, it must be noted that these data were collected before the announcement of new national COVID-19 restrictions starting on 3rd April, so sentiment may take a short-term dip during the next survey period.”

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