Eurozone construction activity continues to march on from its Covid lows, according to a closely watched business survey released today.
The IHS Markit Eurozone Construction Total Activity Index was unchanged over the last month, reaching 50.3 in June, indicating a marginal expansion in construction activity.
This was the fourth consecutive month that construction firms in the Eurozone reported expanding activity levels.
The rate of activity growth remained unchanged due to a slower rise in new orders in the last month.
A reading above 50 indicates a majority of businesses reported an expansion in activity.
Growth in activity was attributed to work starting on new sites, with housebuilding driving the expansion as housing markets across the Eurozone economy runs hot.
Construction firms were more optimistic about their future prospects, recording the best figure for positive sentiment since June 2019. This was the sixth consecutive month of positive sentiment among construction companies.
Work undertaken by Eurozone housebuilders rose for the fourth successive month in June, although the speed of growth edged down slightly from May. Housebuiding was most robust in Germany and Italy.
Usamah Bhatti, economist at IHS Markit, says: “Eurozone construction companies reported a further uptick in activity at the end of the second quarter.”
“Incoming new business also rose for a second successive month, though at a marginal pace as appetite for new construction projects were dampened by severe price pressures and material shortages.”
“Nonetheless, eurozone constructors were increasingly optimistic about the year-ahead outlook for activity, as confidence rose to the highest level since June 2019.”
Despite strong housebuilding figures, Eurozone commercial construction activity dipped for the 16 consecutive month, although the pace of the decrease softened from May.
Likewise, the contraction in civil engineering activity extended into June, as work undertaken on infrastructure projects dropped for the twenty-third month in a row.
Inflation starts to weigh on construction activity
Swelling cost burdens faced by Eurozone construction firms is dampening activity in the sector, according to IHS Markit analysts.
Average cost burdens faced by Eurozone constructors increased at a substantial pace during June, with the rate of cost inflation rising at its fastest pace on record.
Bhatti says: “The latest data indicated a new record rise in average operating costs, while the time taken to receive raw materials extended to the greatest extent in the history of the survey.”
Higher prices may be causing in some construction firms to refrain from starting new projects due to them being financially unviable.
Disruptions to supply chains intensified in June, with a new record lengthening in supplier delivery times. The latest extension in lead times stretched the current sequence of deterioration to nearly nine years.