The news comes from new surveys conducted by S&P Global and Hamburg Commercial Bank (HCOB).

The HCOB Eurozone Construction purchasing managers鈥� index (PMI) reported the sharpest decline in activity in three months, with a 鈥渕arked鈥� fall in new orders.

The index fell to 42.7 in February, from 45.4 in January (where a score less than 50.0 indicates a decline). There were declines in all three of the biggest Eurozone economies, with the fastest drop in France, according to the survey. Italian companies experienced their first decline since November last year.

There were steeper falls in activity in all three monitored sectors: housing, commercial, and civil engineering. The residential sector was the worst performer, while civil engineering fell at the fastest pace in eight months.

When it came to forward demand, Italy recorded the third consecutive monthly rise in new orders, although this was dragged down by a weak sales environment in France and Germany.

Construction companies in the Eurozone remained pessimistic about their output for the coming year and forecast a drop in overall activity. But the degree of negative sentiment has been less pronounced since June 2024 and Italian companies were the most upbeat they have been in five months.

French and German companies were more pessimistic. But those in Germany may be cheered by news of proposals to create a 鈧�500 billion infrastructure fund, reported yesterday.

Dr Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, said, 鈥淯npleasant signals come from the Eurozone construction sector as the HCOB Eurozone Construction PMI in February shows deepening weakness that does not seem likely to fade soon. The recession now encompasses all three major Eurozone economies: Germany, France, and Italy. Although the ECB, particularly Executive Board member Isabel Schnabel, has signaled a pause in the rate-cutting phase to await further dynamics, the construction sector makes it clear that a delay in rate cuts in interest-sensitive areas can be fatal.鈥�

UK activity falls sharply

Meanwhile, steep declines in housing and civil engineering activity led to the fastest downturn in activity reported by UK buyers since May 2020.

The S&P Global UK Construction PMI scored 44.6 in February, down significantly from 48.1 in January. The residential building sector was the worst performer, down at 39.3 鈥� its fifth month of consecutive month of decline. Survey respondents cited weak demand, headwinds from elevated borrowing costs, and a lack of new work to replace completed projects.

Civil engineering also declined steeply to 39.5, its lowest level since October 2020. Commercial construction fared a little better at 49.0.

The survey also reported worsening demand conditions across the construction sector. New order intakes decreased sharply and to the greatest extent since May 2020. The survey respondents reported clients delaying decisions, reflecting squeezed budgets and concerns about the economic outlook.

Tim Moore, economics director at S&P Global Market Intelligence, said: 鈥淪harply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.鈥�

Nonetheless, UK construction companies remain optimistic about their growth prospects for the next 12 months, although slightly less than on average in 2024, amid concerns about the broader UK economic outlook.