Insolvencies in the construction industry in France: interest rates are key

Since the low of 2014, glimmers of recovery have been seen in the construction industry. Corporate insolvencies are declining. French households are increasingly attracted by bricks and mortar as their purchasing power is at its strongest since 2003, particularly due to interest rates also being at historic lows. However, interest rates, which have been rising since the beginning of the year, could ultimately put a damper on household spending should this trend continue. So, if corporate insolvencies in the construction industry continue to decline from now to the end of the year (-7.7% on average in 2017 according to Coface), the power of households to purchase new property will begin to fall by 9 m2 in 2017. Coface expects to see a 18m2 decline in purchasing power between 2016 and 2018. This means that we will be back to 2012 levels in only two years. The current recovery may indeed be short lived.