Construction Activity Plunges in Germany, France, & Italy

And construction companies “aren’t expecting a swift recovery.”

By Nick Corbishley, for WOLF STREET:

The signs of strain continue to come thick and fast for the Eurozone’s economy. At the end of last week, it registered a fall-off-the-cliff collapse in its all-important services sector. Also confirmed was a vertiginous downturn in manufacturing. Now it’s the construction industry.

The IHS Markit Construction PMI for the Eurozone, which tracks how executives of unnamed companies perceive various aspects of business at their own company, suffered its steepest decline since February 2009, when Euro Area economies were grappling with the fallout of the first installment of the Global Financial Crisis.

In these Purchasing Managers Indices, 50 is the no-growth line; above 50 means expansion; below 50 means contraction. The lower the number below fifty, the more dramatic the decline. The construction PMI collapsed from moderate growth in February (52.5) to 33.5 in March, its lowest level in 11 years.

The downturn in construction activity was broad-based across both geographical regions, with all three of the biggest economies — Germany, France and Italy — experiencing steep declines, and sub-sectors. Both home building and commercial construction projects were hit hard by the downturn while civil engineering work was hit even harder, suffering its fastest contraction in eight years.

Here are some more sobering takeaways from the report:

  • With most of the industry’s activity paralyzed, “eurozone construction firms cut their staff numbers for the first time since January 2017” and at the fastest rate in a decade.
  • “The downturn in construction activity also saw firms scaling back their purchases of raw materials and other building inputs for the first time since October 2016. Moreover, the decline in purchasing activity was the steepest recorded in the survey’s 20-year history.”
  • “Despite the sharp reduction of input purchases, suppliers’ delivery times in the eurozone construction sector lengthened further in March, and at a rate not seen since the survey started in January 2000.”
  • “New business plunged in March, falling at the fastest rate for over 11 years. National data showed a broad-based decline across the eurozone, led by severe falls in Italy and France.”

At the national level, the sharpest decline was registered in Italy, which got hit first by the COVID-19 crisis and was the first European country to halt all non-essential activities, including construction. As a result, its construction PMI collapsed nearly 35 points from 50.5 in February to 15.9 in March, which goes down as the “quickest [rate of contraction] seen since the survey began in 1999.”

Markit does not produce a monthly PMI for the Spanish construction sector. But it’s safe to assume that the collapse of its all-important construction industry is not far behind Italy’s in terms of both sequence and scale, given that Spain was the second Eurozone economy to impose a lockdown on all non-essential activities. That was just over a week ago. Before that, only 34% of construction projects had been halted.

In France construction activity slumped by 15 points from 50.2 to 35.2. It was the sector’s fastest decline for just over five years. March data also revealed tumbling demand, with new business placed with building firms falling at the sharpest rate since the nadir of the financial crisis over 11 years ago.

In Germany, the arrival of Covid ended the country’s multiyear construction boom, which was one of the last remaining growth drivers of its stuttering export-led economy. The headline PMI plunged from 55.8 in February to 42.0 in March, its lowest level in over 7 years. Housing activity, which had been the strongest performing sub-sector, registered its steepest decline since March 2013. Commercial activity fared even worse, suffering its biggest drop in eight years, while the worst hit sub-sector, civil engineering work, recorded its sharpest decline since early-2010.

“The near 14-point fall in the headline Construction PMI in March is somewhat comparable to those seen previously during times of inaccessible conditions on site during very heavy snowfall, in late-2010 and early-2012 for example, which gives some context as to the severity of the collapse in building activity brought on by the COVID-19 outbreak,” said Phil Smith, another principal economist at IHS Markit. “The difference now is that constructors aren’t expecting a swift recovery – business confidence towards future activity has shown an unprecedented collapse and firms have begun cutting staffing numbers for the first time in almost five years.”

During the Global Financial Crisis and the Euro Debt Crisis, back-to-back between 2008 and 2012, tens of thousands of construction companies hit the wall, taking thousands of suppliers with them. The destruction was particularly pronounced in countries that had experienced large housing bubbles such as Ireland and Spain. But some of the big, heavily indebted, well-connected ones had their debt loads restructured by their ECB-supported banks and their most toxic assets taken off their books and hidden in taxpayer-supported “bad banks.” This time around, the locus has expanded. Now, the biggest housing and construction bubbles are in cities like Amsterdam and major cities in Germany. By Nick Corbishley, for WOLF STREET.

Never before have so many property funds shut the doors on so many property investors. Read… Lockdown Hits UK Commercial Real Estate, Retail Landlords & Their Investors: Most Property Mutual Funds Suddenly “Gated”

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  33 comments for “Construction Activity Plunges in Germany, France, & Italy

  1. 2banana says:

    Sweden never shut down.

    So far, they seem to be weathering the crisis as good as anyone.

    Without destroying their economy.

    Any data on their construction activity?

    • Wolf Richter says:


      Patience. It’s coming: “Now it’s bracing for a surge in deaths.”

    • fajensen says:

      We need to be clear that using “their economy” is only really appropriate if “their” is the economy of the Wallenbergs and their ‘support services’ – anyone who are not in the top 10% are not being bailed out and they have to go to work and get infected!

      One suspects that the demography of the Covid-19 victims so far has been similar to the one with the gang shootings and from what happened with the response to the gang shootings, the moral and actual panic will arrive when ‘proper people’ becomes victims.

      The sad/ironic part is that by that time, the hospitals have crashed under the load.

    • KPL says:

      Sweden is a pretty interesting case. As on April 8, 2020 – Cases – 7693, Deaths – 591. Around 6%. Still less than France, Italy and Spain but higher than Switzerland, Germany etc.. Lifestyle (Singles in high proportion) is mentioned as one of the reasons. That said, without draconian measures it seems to be doing okay. But the jury is still out on this.

      The other important question is if there is no shuttering will it be business as usual. Unlikely given the fear now prevalent but at least there could be people who may brave it (or spread it, if you look at it from another angle) and thus the economy may not be shattered like it is now.

      No one really knows which is the right course of action. Only time will tell. It is not easy to be a decision maker at this time. Media frenzy makes it harder still

      • Martin says:

        “Cases” is pretty meaningless as the testing activity is quite different in different countries. Deaths is a much safer statistic.

        Sweden has about 6 deaths per 100k inhabitants. UK is at about 8, Germany at 2.5. Everywhere the daily death toll still climbed for some time before lock-down slowed things down. Perhaps there is ultimately no other strategy than herd immunity and Sweden just reaches that point faster. But the short term death rate in Sweden is high and will climb in the coming days. If containment is the strategy, Sweden has bungled it badly.

        • char says:

          Herd immunity wont be reached in Sweden for 8 months (probably more). It creates many deaths and makes travel to for instance China impossible during the time herd immunity is not reached. The protocols to treat a patient with Covid are also still in flux and will probably become much better (think 50% less death, will still be awful) so getting sick in 6 months is a much better (less worse) idea than now.

    • Realist says:

      Time will tell how well Sweden turn out to manage the crisis. It seems their basic idea is that when enough people catch it, the the epidemic will end.

      It might turn out to be really interesting times in Sweden. Swedes generally are indebted over their ears and more and more Swedes are turning up unemployed as companies shut down temporarily or forever.

      They seem to be well off, but their housing, cars, you name are financed with debt. The classical case there is that they don’t pay off their housing debt, only the interest and what if Sweden’s well established housing bubble goes poof ? How do you pay your debts without a regular paycheck ? Apparently several big housing developers have been in trouble for months already. In addition, ordinary Swedes have difficulties finding affordable housing because municipalities are hoovering up what there is available to house migrants.

      Btw, Finland does fear that Finnish citizens living in Sweden ( several 100k people ) would return to Finland if Sweden’s health care goes on its knees because Finland knows that Finnish health care will not be able to manage such an influx of people, Note that Swedish health care was already weak before corona struck due to shortage of funding, lack of personnel, lack of equipment etc. In Stockholm ( the capital ) they sacked 800 doctors and nurses from the 2 main hospitals due to lack of funding a couple of months ago, just to mention one example. The situation was such that people were transported to Finland to receive needed treatments or give birth because Swedish health care couldn’t provide the needed care ..

      • Gold is says:

        “..In addition, ordinary Swedes have difficulties finding affordable housing because municipalities are hoovering up what there is available to house migrants…”

        Ah! The triumph of open borders & multiculturalism

      • MC01 says:

        Realist, Italian newspaper La Repubblica ran a piece about Finnish authorities being concerned the Covid-19 may precipitate a debt crisis among households: if the data they presented was correct at last check the average Finnish citizen owed debts for 127% of his annual earnings, the highest in Europe. This is a different metric from the usual “household debt to GDP” and far more dangerous.
        Care to comment?

        • Realist says:

          It is true that households do have the highest debt load ever in Finland. To a very large extent this is due to housing or vehicles but consumption related debt has increased considerably, too.
          Vehicles are taxed hard indeed here, thus the only option for most people are to buy their car, new or used, using some kind of debt. And cars are needed due to long distances, although metro areas usually have decent public transportation. Private leasing has gained a lot of popularity lately.

          Housing has been in bubble territory for several years due to low interest rates and limited availability in certain areas, mainly our growth centers, outside those areas the problem is that the value of housing seems to be on a constant, sinking trend.

          Rents are high in growth areas and Finns traditionally buy their home if possible, the loans are usually paid off in 10 to 15 years, although longer duration loans have been introduced during the last few years. I myself simply can’t grasp how for example a teller at a local market in Helsinki can manage to live single in small rental on what is left of wages after paying the rent …

          Traditionally Finns have been frugal and avoided to consume on credit but credit card debt, installments, blanco loans etc have gained popularity due to low interest and “good times”, people wanting the “good” now and not later after saving up.

          Then there are regions to the east and north that haven’t experienced these “good times” so much. There are still people around suffering from the fall out of the early ’90s. Unemployment is quite high while at the same time there’re shortage of enough skilled people. The skills of the unemployed and what is needed doesn’t meet, in addition most new openings are created in our growth centra, not in the areas with the worst unemployment.

          Now with lots of people being furloughed from the service sector ( restaurants etc closed to at least end of May ) and from the industry ( steel, car manufacturing, heavy industry, smaller construction companies etc ) it is for sure going to be tough for many people, the amount of applications swamping the system, causing delays before benefits are paid out. Our largest unemployment pay desk office warned a few days ago that unless the government doesn’t simplify the bureaucracy involved, payouts will be delayed for months with their staff being unable to process applications any quicker.

          It is hard to pay off your debts if you don’t have a paycheck and a big question is what kind of buffers have people managed to save up ?

          As it does seem currently, the early ’90s (incredibly bad times) are probably going to look like a mild breeze compared to what is coming … Q2 is probably going to be a nightmare.

          Well, I did cut my teeth during the ’90s, the IT-bubble and the recession 2008, maybe I did learn something useful.

        • MC01 says:

          Realist, thank you very much for your reply. It seems Finland is still stuck with the same problem she had in the second half of the 90’s: highly developed urban areas and struggling rural areas.
          I remember an exchange student we had from Tampere University (we ended up trading music tapes) who came from a rural area. His descriptions of home reminds me of our South, just with more snow and less mountains.

        • char says:


          I seriously doubt that taxing vehicles highly and share of income going to new cars is correlated. People buy the car they can afford not what they need otherwise Dacia would be much bigger than Audi, BMW & Mercedes combined, not Dacia not even half the cars of any of them

        • Realist says:


          Yes, people buy what they think they can afford. I only mentioned taxation of vehicles because a car is the second most valuable item the average family will buy.

          You have to keep in mind that people’s earnings are heavily taxated, too. In most muncipalities outside of growth centres taxation is considerably higher than in the wealthier parts of the country.

          The way our system works, student debt isn’t a great problem. Due to how our system works, you won’t be bankrupted by a few weeks stay at a hospital, $50 per day at most. An ER visit costs €41. This is somewhat simplified, but compensates a lot of taxation, indeed.

        • char says:


          But in European countries where new cars are taxed highly the most popular car is a “polo”, in low tax countries it is a “Golf” so taxation does not influence the total car loans people take out. Saying taxation leads to high loans is just untrue. A rule of thumb is that people buy a car that is half their yearly income and that is not influenced by how much cars are taxed.

      • char says:

        “Hoovering up for migrants” is code for not building enough public housing. It takes 3 years from the idea we should build some extra homes because of all the new immigrants to here are the keys.The influx of migrants did not happened yesterday and they still haven’t thought “we need to build more homes”.

        It reminds me of the quote:”Any problem that isn’t solved in 6 months is a solution for a group of people that i don’t know.”

    • char says:

      Italy, Spain etc. have 2 months of lock down and everything afterwards is oke and semi* back to normal. It cost money but because everybody can go on with were they left of the economic problems aren’t as big as with the unintelligent Northern countries who need much longer to be Covid clear.

      *) except for hotels that cater to Swedish, It takes at least 6 months before they are allowed to travel to Italy or Spain or any other country with an intelligent policy

    • Saltcreep says:

      Viewing it from just across their western border I note that two otherwise fairly similarly disposed countries have a quite different development so far. Sweden now posts daily death counts equivalent to the total deaths recorded since the start of the pandemic in Norway (may change, as unfortunately the pressure here too is now mounting to ease up on measures).

      I’m not by that by any means trying to boast about my own government’s response to the pandemic, though, as they’ve, in my view, been equally as grossly negligent of its dangers (I noted e.g. the chief editor of the Lancet ripping into the UK government on the BBC for ignoring knowledge everyone has had since January) as most other governments, but I reckon Sweden has properly gone out on a branch in terms of gambling with the lives of its citizens.

  2. Beardawg says:

    All this depressing Euro-news makes USA repositioning post-COVID look more promising, despite backdoor Fed bailouts and pending inflation.

  3. David Hall says:

    UBS published a global housing bubble list in Sept. 2019. Munich, Toronto, Hong Kong and Amsterdam were near the top of the list. Low interest rates resulted in leveraged speculation.

    I have seen a slight increase in unsold housing inventory in SW Florida. This area is dependent on tourism and winter visitors with second homes. The virus is silently spreading through the community. Non-essential businesses are closed. People started to wear dust masks and tried to avoid each other in narrow grocery store aisles. There are cranes at a partially completed waterfront resort hotel-condo construction project where the owners planned on renting out premium hotel rooms for up to $500/night.

    Online short term rental firm Airbnb got a billion dollar cash investment from private equity firms. Their hopes to launch an IPO in order to cash in their stock options seem to be doubtful. Airlines have parked their jet planes.

    • qt says:

      Let’s hope all these short terms housing speculators crash and burn for good. Maybe long term renters can finally get some affordable supplies lol

  4. Crazy Chester says:

    “A vertiginous downturn”

    Damn, that’s a $5 word in a deuce and a quarter economy.
    I hope he read that one out loud for his locked down with, live-in mother in law, although the Spanish version, whatever it is, probably simply screams “Help me! I’m falling!” – the feeling I’ll have looking at the economy in 2 months – in that wonderful excitable manner only Spanish speakers do justice.
    Gotta love this Don/Nick guy.

  5. ML says:

    Construction companies operate on wafer thin margins. Big numbers look impressive to investors but apart from what the client is spending for the end result don’t mean anything. Construction companies need substantial order books to ensure they can retain their workers. The headline figures look good on paper and stock analysts love to play around with the numbers. But it only needs a couple of projects to turn sour or a subcontractor to mess up as in the case of Costain v the Welsh to lose at arbitration for as in Costain a share price to tumble from heady heights to around GBP 0.35.

  6. MC01 says:

    Many people have no idea how unprepared Germany is for her first real estate burst. Italy and Spain have already gone through bursts before: they know the drill.
    But Germany… this is her first time.

    The market is overwhelmingly driven by “dumb money”: for-profit foundations, pension funds, retail investors… traditionally these categories have long been heavy in real estate, but more as a source of fixed yield. Even back in 2016-2017 you could still get 3.5-4% yearly yield on CRE in areas of Bavaria. But those yields have been crushed into dust. Landlords who bought over the past three years need a magnifying glass to see any scrap of yield, squeezed between new supply and sky-high prices: the only exception is Augsburg which, kinda like Zürich, has always been bloody expensive and remains so.

    Just before this crisis started the German real estate market was morphing into a parody of China’s: people bought at sky-high values hoping to sell at an even higher price in a few years or even months.
    But now? Dumb money won’t get direct taxpayer-backed loans from KfW and the Landesbanken. Retail investors even less so. Most will be bailed out one way or the other (at least until “garden variety” inflation starts heating up, then the taps will suddenly close) but it’s extremely hard there will be much appetite for taking on more debt to fuel even crazier real estate valuations. Even at 0% interest debt still has to be serviced and the principals in the real estate sector are absolutely insane these days.

    I also expect German contruction equipment companies like Liebherr (ok, it’s technically incorporated in Switzerland but you know how these things work) and Schwing to take the mother of all beatings, albeit a big plan to build infrastructures may save their skin at last moment: I know I am selfish but it’s about time the GaPa bypass is built. ;-)

    • Martin says:

      I have absolutely no clue about office space valuations. But in the residential real estate area, I doubt that there will be a crash in house prices even in Munich, despite its high price to rent ratio. It is still fairly difficult to get a mortgage without ~20% equity (the neighbours of one of my brothers tried) and mortgages are overwhelmingly fixed rate, typically ~10 years. Only rich people buy homes in Munich.

      Interest only loans are very rare as well and typically you have to pay ~2-3% pay off per year. If you can afford the payments in year 1, you can afford them typically easily in year 5. I’m working in the public sector and the last 3-year collective labour agreement was > 8% increase in wages distributed in those 3 years.

      I as well expect in the future some reduction in income taxes. Due to inflation and nominally fixed exemption limits the effective tax rates are going up all the time. Public debt to GDP at the end of 2019 was lower than before the last financial crisis and finally the Eurozone neighbours put some pressure on German austerity.
      As well I expect in the medium future substantial inflation to be more likely than deflation. The ECB might accept temporarily higher inflation with the Corona virus as excuse. Food inflation is already up. Very high inflation rates, which would force the ECB’s hand are unlikely to occur without this inflation showing up as well in rents, which are a substantial part of the CPI. If inflation shows up in rents, the high prices would justified post factum. So I expect interest rates to stay low in the forseeable future. As of time of this comment 30-year Bunds are at 0.1%, so it seems bond investors as well don’t assume higher interest rates about ever to occur.

      • MC01 says:

        That line of reasoning is exactly what was common in Spain in 2008-9: it cannot happen here. Real estate will beat the crisis. We all know what happened: every market is exceptional until reality comes and visits.
        Real estate takes months if not years to bottom, wiping out wealth as it goes lower and lower: the bottom for Spain was actually in 2013, five years after the Financial Crisis, and given the silly heights real estate had reached in 2008 it wasn’t pretty to look at.
        On top of that all European central banks have completely run out of “emergency tools”: Mr Draghi used them back in 2016 to buy us a two-years long boom. Now all that’s left is effectively monetizing debt.

        PS: if austerity is all the rage, why incentivate the Spanish government and French corporations to get deeper and deeper into debt by slashing their lending costs and creating a buyer of last resort for their debt? ;-)

    • Leser says:

      Interesting thoughts and I agree, particularly on Germans not being prepared for the downturn. The last hard recession in the 1990s is too long ago, and a property bust will be a new experience.
      It strikes me how little disruption my German contacts expect for themselves from the global shut down. A factory closing is seen as just the fault of suppliers not able to deliver, a friend in a somewhat strategic position in a steel business sees dropping demand from main sectors (auto, investment goods, construction) as balanced by increased production of ventilators.
      4-5% yield in renting is very high, after all costs that is beyond reach for most small private landlords based on current house prices. Some 20 years ago, before the bubble, I saw real world all in yields for landlords with small portfolios of around 7%. That was for the favoured category of German working class tenant families – stayed for decades, did all repairs themselves, maintained the houses in spotless condition.

      • char says:

        The real trouble in Europe is not Italy, who will have defeated C by Mai, but Sweden, Netherlands, Austria and Germany who will still be fighting C in September. They are the ones that normally stop sensible economic policy but now they are now trouble will be in favor.

        But C does not really hit demand that much so restarting the economy is not that difficult so i don’t expect that much trouble.

  7. The Enhancer says:

    Nick’s comment is fundamental to understanding the angst felt in the wealthier northern eurozone over coronabonds. Misuse of funds. So that perfectly good; fully legal and licensed, well managed but less well connected firms went down instead during 2008 – 2012.
    But then factor in how often, over the years, the wealthier north bought up competitors in less developed EU states, often with that state’s inward investment assistance. Ran the business down, asset stripped it and shut it down.
    Maybe this then being a fear of one of the conditions attached to ESM funding; that competitors to the wealthier north get ‘run down then bought up’.

    • MC01 says:

      Enhancer: I am half French and half Italian and I understand fully well why Dutch and Finnish voters are so angry over the “emergency bond” issue. In fact I may be even angrier than they are.

      I’ll give you an example: the Italian government has had the lowest borrowing costs in its history for a decade now. Did it take the occasion to put public debt under control? Of course not. Then perhaps it did splurge on rebuilding crumbling infrastructures? Not even remotely. The money was just frittered away in a thousand small rivulets. There’s not even a grandiose corruption scandal in between, just the usual miserable petty thievery.

      The response to Covid-19 has shown the world the Italian government hasn’t changed one tiny bit. To stay on the financial side the promised €400 billion stimulus package has no financial coverage whatsoever: the money or again may not be there. It was just a bone thrown to businesses to justify a response to Covid-19 which was flawed at all levels. Now there’s no plan to reopen the country, only threats which sound more absurb by the day. Would you give more money to these folks? I know I wouldn’t.

      Italy is a vital part of the European economy: care to guess where cylinder blocks for Husqvarna chainsaws and exhaust systems for many BMW motorcycles are made among many many other things? The German government has already an eye on re-opening the country for business gradually, starting around April 20. But they cannot do so if Italy is still locked down for nobody knows how long: they need either a detailed plan like Austria has or a firm commitment.
      When Italy (and by extension France and Spain) will agree to reopen for business, then and only then will the emergency bond issue be discussed seriously.

      • char says:

        Italy has run a surplus for most of the Euro time. It did really try. It just had to much debt and killed the economy by spending to little. Macro economy does not work like micro. If they had spend more their deficit would be less.

        You are right about Italy’s response to Covid. They were not good enough prepared and they were too slow and too soft. Too many people are leaving their house to work etc.

        April 20 is probably to soon but a week or two later is likely. Problem is that Covid will still burn in Germany so i doubt Italy will open their borders to Germany. They, like UK & Sweden, will be isolated until they are Covid free while the borders between France, Spain, Italy etc. will be open

  8. Brant Lee says:

    It’s another blow to skilled labor ten years or so after the Great Recession. It’s hard to make a career in a construction trade when the market crashes so often, shut down a few years. An electrical, plumbing, concrete, etc, contractor can’t just hire Johnny-off-the-street, no experience, when times decide to get good again. Much less finding someone skilled who wants to work their ass off in this day and age. That’s why construction can be so expensive and sometimes faulty.

    • char says:

      The biggest crash was in civil engineering (i read that as state projects) so i see it more as a very long blizzard than a true recession. A blizzard is mostly a money issue and money can be papered over so i don’t think it will in the end be so bad economically.

  9. char says:

    The good news is that civil engineering is the hardest hit. I don’t expect the states to cut their budgets in the next few years so it points more to a “Blizzard” recession than a “Market” recession

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