Massive fall in civil construction confidence index
THE FIRST National Bank (FNB) and Bureau for Economic Research (BER) Civil Confidence Index released yesterday showed that construction activity in South Africa declined sharply in the second quarter of this year to levels last seen in 2011.
The index nosedived from 40 points in the first quarter to 28 in the quarter under review.
Jason Muscat, a senior economic analyst at FNB, said the index showed that more than 70 percent of respondents were dissatisfied with business conditions.
Muscat said the fall in the index was consistent with an environment of constrained capital expenditure by the public sector.
“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,” Muscat said.
“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.”
Earlier this month, the Rand Merchant Bank/BER Business Confidence Index plunged by 11 points to 29 points in the second quarter of this year – its biggest decline in nine years. This was largely the result of weak business activity.
JSE-listed construction company Afrimat launched the Afrimat Construction Index (ACI) last week.
According to the ACI, the construction sector expanded by 22.7 percent between the third quarter of 2010, the index’s base period, and the first quarter of this year.
The ACI is based on six different indicators, including the building materials sales index, buildings completed within larger municipalities, building plans passed by larger municipalities, the FNB/BER Building Confidence Index, the FNB/BER Civil Construction Index, and retail sales of hardware, paint and glass.
Chris Campbell, the chief executive of Consulting Engineers South Africa, said yesterday the largely negative business sentiment meant that investment in construction would remain poor.
“There are indications that earnings have reached an upper turning point, with a softer growth outlook in the medium term for the industry.
“Business confidence levels first need to be restored to encourage higher levels of investment and kick-start the beleaguered South African economy,” Campbell said.
Statistics South Africa this week said the country had shed 48 000 jobs in the first quarter of this year. However, the construction sector created 12 000 jobs during this period, making it the biggest contributor to employment.
Muscat said the outlook for the construction sector would remain depressed, because macro-economic factors did not support growth.
“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.”