Publications
Partners
Johannesburg – Confidence in the construction industry fell to its lowest level in six years.
The FNB / Bureau of Economic Research (BER) Civil Confidence Index, released on Wednesday, dropped to 28 in the second quarter of 2017. This is down from 40 reported in the previous quarter.
This means more than 70% of respondents are dissatisfied with business conditions, the report explained. The lower confidence was driven by a decline in construction activity, which also drove down profitability in the sector.
The real value of construction works contracted by 0.1%, year-on-year for the first quarter of 2017, data from Statistics South Africa (Stats SA) revealed. Compared to the previous quarter in 2016, construction activity grew by 2.3%.
“The fall in construction activity is consistent with an environment of constrained public sector capital expenditure. Therefore, although quite stark, the decline in activity is not entirely surprising,” said Jason Muscat, senior economic analyst at FNB.
Downgrades weigh heavily on confidence
“The spate of sovereign debt ratings downgrades, as well as the uncertain mining sector outlook in the wake of the New Mining Charter, bodes ill for the future of the civil construction sector,” said Muscat.
Further, some parastatals have cancelled bond auctions, as they expect uptake to be weak in light of the recent downgrades. “This affects their ability to fund large capital projects,” he said.
The fall in demand is not likely to improve for the short to medium term, explained Muscat. Civil contractor activity is expected to be under pressure for the remainder of the year.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
