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Confidence in construction sector plummets to 17-year low

Cape Town – Confidence in South Africa’s construction sector fell to its lowest level since the third quarter of 2000 on the back of severe dissatisfaction with prevailing business conditions in the industry.

In a statement issued on Wednesday, Jason Muscat, a senior economic analyst at First National Bank, said the FNB Bureau of Economic Research Civil Confidence Index shed 13 points to register a level last seen 17 years ago.

Overall, the index dropped 37 index points over the past year.

“The current level of the index means that 85% of respondents are dissatisfied with prevailing business conditions,” he said.

Underpinning the lower confidence was weaker growth in construction activity. Statistics South Africa earlier calculated the real, seasonally adjusted growth in construction works at 3% year-on-year in the second quarter of 2017, which was more or less unchanged from the first quarter.

However, on a quarterly basis the value of spending contracted by 1% in the second quarter of this year, from a 1.2% decline in the first quarter.

“This quarter’s survey results suggest that the poor growth performance seen in the second quarter should continue into the third quarter, if not worsen further”, said Muscat.

Broader policy uncertainly also likely weighed on confidence this quarter, although this was not explicitly measured by the survey.

“While it is true that activity and profitability growth likely deteriorated during the quarter, the levels are not as bad as was the case in 2000 when confidence was last this low,” Muscat said.

FNB is of the view that broader policy uncertainty, especially surrounding the revised Mining Charter and key renewable energy programmes, have made civil contractors more pessimistic than what the underlying indices suggest.

Looking ahead, it is likely that conditions in the sector, particularly constriction activity, may remain under pressure.

“The percentage of respondents which cited insufficient demand as a business constraint rose in the quarter, and this is usually a decent proxy for the state of the industry’s order books,” Muscat added.

Earlier this month, Fin24 reported that business confidence in South Africa also dropped significantly, reaching its lowest level in more than 30 years as political uncertainty, unemployment and dwindling trade weighed heavily. 

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