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Construction activity in Italy declines for first time since March 2018

Christian Fernsby ▼ | June 7, 2019
Italian construction activity declined for the first time since March 2018 during May, amid a contraction in new business.
Construction activity in Italy
European economies   Despite this, firms took on additional workers at the joint-fastest rate
Purchasing activity also dipped midway through the second quarter.

Despite this, firms took on additional workers at the joint-fastest rate since March 2007 in an effort to replace leaving staff.

Meanwhile, in spite of the declines in activity and new work, confidence in future output increased to the highest since April 2018.

At 49.8 in May, down from 52.5 in April, the seasonally adjusted IHS Markit Italy Construction Purchasing Managers’ Index® (PMI®) signalled the first contraction in Italian construction activity since March 2018.

Despite this, the rate of decline was marginal and the latest reading compared favourably with the long-run average of 47.6.

At the sector level, for the third month running residential construction activity increased at the fastest rate of the three broad sectors.

Despite this, the rate of expansion was modest.

Meanwhile, civil engineering activity contracted for the sixth consecutive month and at the fastest pace since March 2018.

Activity in the commercial sector increased marginally during May, with the rate of growth easing to the slowest in the current 14-month sequence of expansion.

The contraction in overall activity was linked to a decline in inflows of new business.

Italian construction firms recorded the first reduction in new orders since February 2018.

The rate of contraction was marginal, however.

Panellists stated that they had observed weaker overall demand conditions.

In spite of the declines in activity and new orders, Italian construction firms increased their workforce numbers at a solid pace during May.

Moreover, the rate of job creation was the joint-fastest since March 2007.

Anecdotal evidence from panellists indicated that greater workforce numbers stemmed from the replacement of previously departed staff.

For the first time since March 2018, purchasing activity across the Italian construction sector declined in May.

However, the rate of contraction was marginal.

Panellists commented that they had decreased buying levels in response to receiving fewer customer orders.

Amid widespread reports of greater raw material prices (notably cement and oil), input costs rose sharply during May, with the rate of inflation quickening from April to a three-month high.

Meanwhile, average lead times lengthened again in May, though the rate of deterioration was the least marked in three months.

Panellists attributed the deterioration in vendor performance to suppliers running out of stock of key items.

Looking ahead, business confidence increased during May to the highest since April 2018, with around 35% of survey respondents anticipating activity to increase over the coming 12 months.

Expectations of an increase in customer orders as well as company investment plans were among the reasons for positive sentiment.