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Weakening in construction activity - index

Mar 23 2016 16:40
Carin Smith

Cape Town - More than 70% of respondents in the latest FNB/BER Civil Confidence Index said they are dissatisfied with current business conditions.

A noticeable weakening in construction activity weighed on confidence in the first quarter of 2016, the survey shows. However, despite lower activity and higher competition, overall profitability remained relatively stable.

Regarding the outlook, survey respondents expect an improvement in construction activity next quarter. However, other data suggests that the remainder of 2016 may see construction work slow further, particularly given soft demand, Muscat pointed out.

The percentage of respondents that rated insufficient demand for new construction work as a business constraint jumped to 85, a four-year high.

READ: Construction industry outlook improves - index

After improving marginally to 42 in the fourth quarter of 2015, the index lost 14 points to register a level of 28 in the first quarter of 2016. This is the lowest value since the end of 2011.

The first quarter also saw tendering competition intensify and a continued moderation in activity in 2016 and possibly 2017. This was on the back of lower public sector capital expenditure and persistently weak growth in private sector capital expenditure.

“The current survey results suggest that, following the mild uptick in the fourth quarter of 2015, growth in construction works likely eased in the first quarter of 2016,” said Jason Muscat, senior industry analyst at FNB.
“As a consequence of the lower growth in construction activity, tendering competition intensified for those projects that are available.”

The percentage of respondents that indicated tendering competition as keener rose noticeably in the first quarter of 2016, to a five-year high.

According to the SA Reserve Bank (Sarb), growth in the real value of construction works accelerated to 4.0% year-on-year (y-o-y) in the fourth quarter of 2015, from 3.7% in the third quarter of 2015.

Construction activity was largely supported by capital outlays by provinces and municipalities, while capital expenditure by private enterprises, particularly in the mining sector, remained weak.

“Although the national budget speech was tabled towards the end of the survey period, the high rating of the lack of new demand as a constraint could already be reflecting the downbeat near-term outlook for public sector - including government and state owned enterprises - capital expenditure. This is especially relevant given that the public sector remains the construction industry’s single biggest client,” said Muscat.

ALSO READ: Construction transformation 'only window dressing'

fnb  |  sa economy  |  construction  |  business confidence


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