French construction activity falls at quickest rate since January 2021
November survey data signalled a steep and accelerated decline in construction activity across France midway through the final quarter of 2022. The sharper downturn reflected quicker reductions in activity across the three types of work monitored by the survey, although especially pronounced falls were seen in residential building and civil engineering projects.
November’s slump was triggered by a further decrease in the volume of new work received. Employment levels were subsequently cut, while survey respondents reported a stronger level of pessimism towards the 12-month outlook. Cost pressures also stayed elevated.
The headline S&P Global France Construction Activity Index – which measures month-on-month changes in total industry activity – fell further into sub-50.0 contraction territory during November. At 40.7, the headline measure fell from 44.3 in October, signalling a sharper drop in construction work across France. The decrease was the fastest since January 2021 and marked a sixth successive month in which total construction activity has fallen.
All three types of construction work monitored by the survey declined in November. The quickest reduction was in residential building work, which dropped at the fastest rate for two-and-a-half years. Civil engineering activity also slumped markedly, with the contraction here the sharpest since January 2021. Commercial building work decreased for a second successive month and at a strong pace.
According to surveyed constructors, the drop in activity levels was driven by falling demand, particularly from clients in the public sector. High costs and reduced investment appetite also weighed on the start-up of new projects. New business receipts fell for an eighth month in a row, with the decline gathering pace since October. The decrease in demand was the fastest since February 2021.
The current downturn in activity and demand led to a marked softening of business confidence in November. The Future Activity Index dropped to its lowest level in just over two years and signalled a strongly pessimistic outlook towards the year ahead. Some companies were concerned about the prospect of sustained weakness in demand.
To adjust for lower requirements, purchasing activity was reduced midway through the fourth quarter. November’s decrease was solid and the fastest in three months.
However, although input demand shrank, supplier capacity remained stretched, as evidenced by a further lengthening of average input lead times.
Meanwhile, employment levels were reduced, extending the current sequence of job shedding to five months. The decrease in staffing numbers, albeit moderate, was the strongest in nearly two years.
Regarding constructors’ costs, November survey data signalled a further steep monthly increase in input prices. Material shortages, high energy costs and a generally inflated market were mentioned as the key sources of price pressures.
Joe Hayes, senior economist at S&P Global Market Intelligence, said: “The downturn in France’s construction sector has significantly accelerated since September, with a sharp drop in October being followed up by an even harsher decline in November. The latest reduction was the quickest since January 2021.
“A lack of incoming new projects was central to November’s drop, with panellists commenting on lower demand from clients, especially in the public sector, as investment appetite waned in the face of soaring costs and heightened economic uncertainty.
“Other survey indicators did little to suggest this soft patch will be short-lived. French constructors cut their staffing levels at the sharpest pace in nearly two years and reduced their purchases of raw materials.
“Ultimately, this has pushed business sentiment further into pessimistic territory, boding ill for near-term prospects for the French construction sector.
“Taken with the PMI survey results for manufacturing and services, the latest data spotlight the increased likelihood that we are witnessing the start of a recession in France.”
