Johannesburg - The construction confidence index in South Africa has fallen despite higher activity in the second quarter of this year.
First National Bank and the Bureau for Economic Research jointly issued the report about the state of construction in the country.
They said after rising to a four-year high of 51 index points in the firsts quarter, the construction confidence index shed six points to 45 in the second quarter.
Confidence fell despite higher activity, but profitability came under some pressure.
The report went on to say that even though confidence retreated somewhat in the second quarter, the rise in activity suggested that growth in the sector likely accelerated.
In addition, the outlook for the construction sector has improved significantly and firms expect activity and profitability to increase notably in the third quarter.
Despite the fall in the construction confidence, the level of the index remains close to the long-term average of the series of 48.
The current reading means that less than half of the respondents were satisfied with prevailing business conditions during the second quarter of this year.Spending
Confidence was lower despite higher activity, and after underperforming in the last quarter of 2012 and the first quarter of this year, construction activity is now on par with that of the third quarter of last year, which was the best since the end of 2007.
In terms of the sources of construction work during the second quarter of this year:
• Private sector construction work remained sluggish amid persistent unrest in the mining sector;
• Despite this, the public sector continued to add to construction work in the second quarter. Construction activity by Sanral and Transnet as well as a resumption of work at the Medupi power station likely boosted work by public corporations;
• General government capital expenditure on construction was possibly supported by municipal spending which has, in the past, picked up in the second quarter. This is as a result of municipalities rushing to spend allocated funds before the end of their financial year in June.
Even though activity was higher, overall profitability came under some pressure in the second quarter. This follows the sharp improvement in profitability in the first quarter.
“Rising construction material costs, combined with a mild uptick in tendering competition and higher employment likely weighed on overall profitability.
"This in turn weighed on confidence.” said Sizwe Nxedlana, chief economist at FNB.
Looking ahead, the outlook has improved significantly with respondents considerably upbeat about prospects for the third quarter.
“This is in line with reports from a number of listed construction companies that their orders books have improved noticeably in recent months” said Nxedlana.
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