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Eurozone decline in construction, demand continues to remain weak

2024-08-07 09:21:15Biznes SHKRUAR NGA REDAKSIA VOX

Eurozone decline in construction, demand continues to remain weak

The construction industry in the eurozone is suffering from weak demand that has led to a series of job losses and cost-cutting measures. This is according to a report published by S&P Global and Hamburg Commercial Bank on Tuesday. The Construction PMI total activity index, a seasonally adjusted indicator that tracks monthly changes in the construction sector, came in at 41.4 this July. In June, this total was recorded at 41.8.

Tuesday's report showed that construction output accelerated in July at the fastest pace seen in six months, driven by contractions in the housing market. This sector recorded its most pronounced decrease since April 2020, which then led to a larger month-on-month decline in employment. "In July, housing activity fell for another month due to weak demand conditions, also leading to another round of job cuts as the employment situation worsened in July," said Norman Liebke, Economist at Hamburg Commercial Bank.

"Trade activity also deteriorated, but the decline in the civil engineering sector moderated compared to June, mainly due to France." According to the new report, pessimism has spread across Germany, France and Italy. Thanks to government subsidies, Italy's construction sector had previously seen glimmers of optimism, although the end of the Superbonus scheme has reversed the trend.

The superbonus was a tax incentive scheme, criticized as too inefficient, that sought to encourage Italians to sustainably renovate their homes. Tuesday's report showed that July marked the fourth straight month of falling demand for Italy's construction sector. The rate of decline accelerated for the second consecutive month.

Meanwhile, in France, total construction activity fell to its lowest level since January and the pace of job cuts was recorded at its fastest pace since March. In Germany, activity continued to decline, but the pace of decline moderated for the third month in a row. The renovation of 40 railway lines would give a boost to the construction of civil engineering in Germany. The project began in mid-July and is scheduled to be completed by 2030.

Looking ahead, experts noted that an anticipated September rate cut by the ECB is unlikely to provide a significant stimulus to the depressed sector. Interest rate cuts can often boost activity as it becomes less expensive to borrow and therefore start construction projects.

"While looser monetary policy should provide some support to the construction sector in time, we suspect that any stimulus will be limited because the ECB will cut interest rates gradually and keep them high by historical standards. ,” said Jack Allen-Reynolds, deputy head of the eurozone. economist at Capital Economics.

He added: “It's hard to see a significant turnaround in the sector when PMIs show firms experiencing sharp declines in new orders. Reflecting this weakness in demand, the future activity PMI fell sharply, to the lowest level in seven months.”


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