Building sector stays on strong foundation
Afrimat index shows small decline after series of political shocks
ACTIVITY in the building and construction sector remained on a stronger footing than seven years ago despite declining for the second consecutive quarter in the second quarter of this year, according to the latest Afrimat construction index.
The index declined only marginally in the second quarter to 117 after reaching an eight-quarter high of 127 in the fourth quarter of last year.
It is a composite index of the level of activity within the building and construction sectors and is compiled by economist Roelof Botha for Afrimat, the listed open pit mining and industrial minerals and construction materials company.
Botha said the index was affected by low levels of business and consumer confidence during the second quarter of the year, mainly influenced by a series of political shocks.
He said policy uncertainty was also acting as a constraint to the expansion of productive capacity in the economy, while durable consumption expenditure by households continued to decline in real terms. However, Botha said activity in the sector had expanded 17.7% since the base period in third quarter of 2010, which was almost 50% higher than the rate of growth in the economy over the same period.
He said the expansion in construction activity since the third quarter of 2010 had been driven mainly by strong increases in retail sales values for hardware, glass and paint; employment in construction; the volume of mined building materials; and the value of buildings completed in large municipalities.
Botha said it remained a concern that the value of buildings plans approved by the larger municipalities continued to perform poorly while confidence levels in the construction sector declined dramatically in the second quarter of this year.
Formal employment in the industry also took a knock between April and June this year. But Botha believed the tide may be turning for construction activity and the index is likely to return to a positive index trend before the end of the year.
Botha based this on the SA Reserve Bank decision in July to ease the debt servicing burden of South African households and businesses by marginally reducing the repo rate and the expansion of the economy by more than 1% during the first half of the year, the first time this had occurred since the beginning of 2015.