–But Activity Likely To Remain Subdued After Catch-Up From Winter

March: +7.6% m/m, -15.2% y/y
February: -7.2% m/m (revised from -3.3%)
January: -1.7% m/m (revised from -0.9%)
December: +0.3% m/m (revised from -1.6%)
November: -1.1% m/m (unrevised)
October: +0.2% m/m (revised from -0.6%)
—

PARIS (MNI) – Construction activity in the Eurozone bounced back
sharply in March thanks to a strong boost from Germany, Eurostat said
Wednesday.

However, the 7.6% rebound, the steepest monthly rise in 14 years,
did not entirely retrace February’s record dive and still left sector
activity 5.2% lower on the year.

Building construction led the upturn with a 9.5% jump that reduced
the annual decline to 2.5% from 14.9% in February. Civil engineering
contributed with a 1.0% upturn and was still 13.8% lower on the year.

A short-term correction had been expected after the harsh winter
put construction projects temporarily on ice, especially in Germany.
However, surveys showing a lagging recovery in sentiment compared to
other sectors point to subdued activity over the longer term.

Construction activity spiked up 26.7% in Germany to the highest
level in over two years. The catch-up process expected by the Bundesbank
in 2Q is clearly under way. Germany’s construction PMI rebounded sharply
in April, surpassing the threshold for growth for the first time in two
years (51.4).

Construction activity in the Eurozone’s largest economy recovered
in April for the fourth straight month, according to builders polled by
the Ifo institute. Their outlook for the six-month horizon rebounded
sharply at the start of the year but has since slipped somewhat from
four-years highs, signalling some uncertainty about the sustainability
of the upswing.

In France, activity edged up 0.1% on the month and was 6.9% lower
on the year. Sentiment surveys are here less promising than in Germany.
Insee’s survey from April pointed a slightly steeper contraction in
activity and firms’ outlook for the coming months recouped only half the
setback in March. The marked improvement in prospects for home
construction signaled by trends in permits was largely offset by a
further erosion for commercial construction. Capacity utilization has
barely recovered from the 13-year low hit at the end of last year.

In Spain, activity rose 3.2% in March, giving a 3.4% decline on the
year. Here the huge overhang of unsold homes will continue to weigh on
activity for a long time, especially as demand will be dampened by
subdued wage trends and fiscal tightening. The European Commission
expects housing investment to fall by over 15% this year and nearly 5%
next year. With the unwinding of stimulus measures limiting expansion in
other branches, total sector investment is seen falling 10% this year
and 3.5% in 2011.

As usual, monthly data were not released for Italy, where sector
activity in 4Q was down 8.2% on the year. Isae’s latest monthly survey
signaled a severe erosion in firms’ assessment of activity and building
projects in March. Nevertheless, builders were more optimistic on future
projects for the first time since August 2008.

For the Eurozone as a whole, the recovery in sector confidence in
recent months was interrupted in April at a level still well below the
long-term average, according to the Commission’s latest survey. Firms
said recent activity had improved considerably — largely due to the
strong gain in Germany — but were slightly more dissatisfied with order
book levels.

The ECB in its latest Monthly Bulletin predicted on the basis of
housing permit trends “that the gradual easing in the pace of the
contraction will continue in the coming months.” Income and credit
developments suggest that housing demand is “stabilizing”, it said.

However, the Commission argues that housing demand is still too
anemic to trigger a turnaround in investment this year. While the
adjustment process “appears to be at an advanced stage in France and
Ireland” there is more adjustment in the pipeline in Spain, it said in
its economic outlook earlier this month.

“Non-residential construction investment, on the other hand, is set
to hold up somewhat better in 2010 – largely on account of
government-financed infrastructure projects thereby partly offsetting
the weakness on the residential side,” it argued.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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