Key Findings:

  • Sharp fall in residential building activity continues
  • Demand for construction work falls, but to softer extent
  • Sequence of downbeat sentiment ends as cost pressures ease

France’s construction sector remained stuck in a downturn at the start of 2023, with a significant drag coming from residential building. That said, the rate of decrease in total activity was moderate and considerably weaker than that seen in December amid a fresh upturn in civil engineering work.

Improvements were also registered elsewhere, with renewed expansions seen in purchasing activity and employment. Business confidence also picked up, with firms signalling a neutral view towards the outlook for 2023. This contrasted with the pessimistic projections seen at the end of last year.

Meanwhile, although cost pressures were elevated, the overall rate of input price inflation eased to a 23-month low.

The headline S&P Global France Construction Activity Index – which measures month-on-month changes in total industry activity – recorded 48.4 in January. This was below the crucial 50.0 mark which separates growth from contraction for an eighth successive month, thereby indicating a continued downturn in the French construction sector. According to sub-sector data, a major drag came from residential building, which fell sharply.

That said, the latest headline index reading was up considerably since December’s 41.0 and pointed to the softest decline in total construction activity since last September. A renewed expansion in civil engineering activity helped ease the downturn. The other segment of construction activity monitored by the survey – commercial building – fell in January, albeit marginally and to the weakest extent seen over the current four-month contraction sequence.

The slower decline in total construction activity coincided with a similar trend in demand, with new orders falling at a considerably softer rate than in December. Overall, the reduction in new business intakes was the weakest since last September. This was a notable turnaround from December when the level of incoming new projects fell at the steepest pace since February 2021.

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French constructors also turned neutral towards the outlook for activity over the next 12 months, following five successive months of pessimistic projections.

Other survey indicators also painted a less downbeat picture for the sector. French construction firms increased their purchases of inputs at the start of the year. This marked the first expansion in buying activity since last September. Albeit only moderate, the rise in purchasing quantities was the quickest for eight months.

A renewed pick-up in employment was also registered during January. Construction sector workforce numbers rose for the first time since June 2022 and to the greatest extent in a year.

Meanwhile, French constructors recorded elevated cost pressures in January. However, for a third month in a row, input prices rose at a softer pace. Consequently, the rate of cost inflation eased to a 23-month low. 

Joe Hayes, Senior Economist at S&P Global Market Intelligence, said, “France’s construction sector remained a drag on the wider economy at the start of the year, with residential building activity falling at a considerable pace.

“That said, there were improved trends in other areas such as civil engineering, which saw the first expansion in activity since last May. The downturn in commercial construction also eased sharply since December.

“Other indicators from the survey also painted a less bleak picture for the construction sector. Business confidence edged up, while firms hired additional staff and purchased extra materials. A further cooling of cost pressures, in part due to more benign conditions in energy markets, will be of considerable help to builders across France.

“That said, with interest rates having risen substantially in recent months, we may yet see a further drop in demand for construction projects as businesses and firms adjust to higher borrowing costs.”

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