Confidence in the country’s civil construction sector in the Second Quarter of 2017 dropped to the joint lowest level since end of 2011.
That’s according to the FNB/BER Civil Confidence Index which fell to 28 index points from 40 in the First Quarter of the year.
“This, along with 1Q2016, is the joint lowest confidence since the end of 2011,” FNB said in a statement on Wednesday.
“The current level of the index means that more than seventy per cent of respondents are dissatisfied with prevailing business conditions. Underpinning the lower confidence was a noticeable decline in construction activity.”
FNB/BER said according to Statistics South Africa (Stats SA), the real value of construction works contracted by 0.1% year-on-year (y-o-y) in 1Q2017, following growth of 2.3% in 4Q2016. The survey results for this quarter point to a more severe drop-off in 2Q2017.
“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 FNB senior economic analyst, Jason Muscat.
He said the decline in construction activity also caused profitability to deteriorate markedly in the quarter.
Muscat said other factors also likely weighed 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.”
“Some parastatals have already cancelled bond auctions due to fears that the uptake may be too weak because of the ratings downgrades. This affects their ability to fund large capital projects.” said Muscat.
“Looking ahead, the factors leading to the slowdown in construction activity, namely a broad-based fall in demand led by the public sector, are unlikely to improve over the short to medium term. It is therefore reasonable to expect civil contractor activity to be under pressure for the rest of the year,” remarked Muscat.
