Key Findings:

  • Construction activity posts renewed drop in March
  • Supply issues exacerbated by war in Ukraine
  • Input cost inflation soars to near-record high

For the first time since last September, French construction companies recorded a decline in activity at the end of the first quarter as supply issues persisted and cost pressures soared. Input lead times continued to lengthen to a sharp extent amid widespread reports of stock shortages at vendors.

Business confidence also eased to a three-month low during March, with rising inflation and geopolitical uncertainty both reportedly weighing on sentiment.

The headline S&P Global France Construction Activity Index – which measures month-on-month changes in total industry activity – fell below the 50.0 mark that separates growth from contraction for the first time since last September in March. At 48.4, the headline figure fell from 50.0 in February to signal a modest and renewed decline in construction activity across France.

Data split by the key types of construction activity showed declines across the board at the end of the first quarter. Commercial construction work posted the fastest reduction, followed by civil engineering and residential building. In all three cases however, rates of contraction were only mild.

Latest survey data continued to signal substantial supplychain pressures during March. Average input lead times lengthened markedly as stock shortages hampered timely deliveries. Some companies linked the latest deterioration in vendor performance to the war in Ukraine. That said, the extent to which delivery times lengthened was the softest in seven months.

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French construction companies increased their purchasing activity at a solid and faster rate during March. Overall, the expansion in input buying was the second-fastest since June 2021. The quicker upturn came despite a further intensification of cost pressures. Latest survey data signalled a steep increase in operating expenses at French constructors. Overall, the rate of input cost inflation accelerated sharply and was among the strongest on record. According to anecdotal evidence, higher prices for energy and raw materials contributed to the rise in expenses.

Nevertheless, French construction companies added to their payroll numbers at the end of the first quarter. In fact, the increase in employment was a notable improvement from the broad stagnation seen in February. The rate of job creation was modest overall.

Meanwhile, new orders received by French construction firms increased during March, marking a positive turnaround from February when intakes of new work fell at the fastest rate in six months. That said, there were a number of panellists that remarked on increased levels of hesitancy among clients due rising inflation and the war in Ukraine.

Finally, businesses in the French construction sector expect activity levels to increase over the coming 12 months. Projects in the pipeline and forecasts of stronger demand underpinned the optimistic outlook. That said, the level of confidence slipped to a three-month low as geopolitical tensions and increasing costs weighed on sentiment.

Joe Hayes, Senior Economist at S&P Global, said, “The French construction sector slid back into contraction territory during March as activity declined for the first time since last September. This came despite a renewed expansion in new orders.

“The contraction was partly explained by the supply-side, with survey data continuing to highlight the strain being placed on vendors. Delivery times lengthened sharply once again in March as stock availability remained poor.

“Just like in all other parts of the economy, French construction companies were faced with intense cost pressures during March. Input price inflation accelerated sharply over the month as rising raw material prices were compounded by surging energy costs.

“Indeed, the inflation outlook has certainly weighed on business confidence, with latest survey data signalling the weakest level of optimism in three months, and the War in Ukraine has added another avenue of uncertainty to businesses.”

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