Wednesday, 22 June 2016 20:05

Recovery in construction activity lifts confidence in Q2

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The FNB/BER Civil Confidence Index gained 13 points to register a level of 41 in 2Q2016.

Jason Muscat FNB

This returns the index to more or less the same level as registered in 4Q2015. Despite the higher confidence, the current level of the index indicates that close to 60% of respondents are dissatisfied with prevailing business conditions.

“While lower construction activity weighed on confidence in the first quarter of 2016, the opposite was true in 2Q2016 as activity rebounded nicely,” remarked Jason Muscat, Senior Industry Analyst at FNB. Data by Statistics South Africa (Stats SA) showed that the real growth in construction works moderated to 6.1% year-on-year (y-o-y) in 1Q2016, from 6.6% in 4Q2015. This was broadly in line with last quarter’s survey results. “If this quarter’s survey results are anything to go by, then it is likely that the growth in construction works picked up again,” said Muscat.

Although confidence was higher this quarter due to the rise in activity, the outlook remains downbeat. Respondents expect somewhat of a slowdown in activity next quarter and the rating of insufficient demand as a business constraint - a proxy for the health of firm’s order books – remained high. “What we possibly saw this quarter, is a combination of election related capital spending as well as a rush to complete projects before the municipal financial year-end in June. This is unlikely to be sustained”, noted Muscat.

Despite the rise in construction activity, profitability came under renewed pressure amid more intense tendering price competition.

In conclusion:

According to the survey results, construction activity rebounded nicely in 2Q2016. Consequently, confidence was higher. However, with pressure on government finances and concerns regarding the mining sector, this is unlikely to continue. “One possible source of work is the renewable energy sector. However, the extent to which it will buoy the construction sector is uncertain”, said Muscat.

Last modified on Thursday, 14 September 2017 13:42

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