Confidence in civil construction gets a lift

CONFIDENCE in the civil construction sector improved marginally in the fourth quarter from the 17-year low recorded in the previous quarter despite activity levels slowing further.

The slowing activity levels contributed towards the index measuring employment growth reaching its worst level since mid-2011.

The FNB/Bureau for Economic Research (BER) civil confidence index released yesterday improved by four index points on a 100-point scale to 19 in the fourth quarter from 15 in the previous quarter.

Jason Muscat, a senior economic analyst at FNB, said although confidence was somewhat higher during the quarter, it still implied that the vast majority of respondents remained pessimistic about the state of the industry.

The current level of the index means that more than 80percent of respondents are dissatisfied with prevailing business conditions.

Muscat added that despite the slight uptick in confidence, the growth in construction activity continued to weaken, which partly justified the current pessimism.

He said the survey results also suggested that the outlook remained downbeat.

Muscat said this was largely due to a further slowdown in construction activity, which had now also influenced job creation in the sector.

“This is the second consecutive quarter that respondents report such a pronounced moderation in civil construction activity.

Slowdown “This slowdown is underpinned by structural factors. Therefore, lower construction activity will likely persist over the short-to-medium term,” he said.

FNB/BER said Statistics South Africa (StatsSA) had reported a marked slowdown in real, seasonally adjusted, growth in construction works to 0.3 percent year-on-year in the third quarter from 3.3 percent in the previous quarter.

Muscat said the moderation in growth in the third quarter was consistent with the latest survey results and it was likely that growth was even weaker in the fourth quarter.

“With growth currently barely positive, we may even see a contraction,” he said.

FNB/BER reported that the softer growth in construction activity also weighed on profitability despite somewhat less keen tendering price competition.

Muscat said while the impact of lower activity on profitability was worrying, of additional concern was the effect it had on employment in the sector.

“The index measuring employment growth reached its worst level since mid-2011,” he said.

Muscat added that respondents were downbeat about the outlook and not only expected construction activity to be weak in the first quarter of next year but a high number of firms cited inadequate demand for new construction work as a business constraint.

“The factors that weighed on activity this quarter, such as constrained public sector finances, which account for a large chunk of infrastructure spending, and policy uncertainty, as highlighted by the current impasse regarding the new mining sector charter, are largely structural in nature.

“It is unlikely these will be alleviated soon,” he said.

The fieldwork for the survey was conducted between October 16 and November 21 this year.