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CONSTRUCTION: Construction Confidence Back Above 50

 





Recent Gauteng Business News

·After increasing by 13 points in 2Q2016, the FNB/BER Civil Confidence Index rose by a further 11 points to 52 in 3Q2016.

·Confidence was lifted by a notable improvement in overall profitability due to less keen tendering price competition and continued (albeit subdued) growth in construction activity.

·Looking ahead, construction activity is set to remain under pressure although order books have improved.

The FNB/BER Civil Confidence Index gained 11 points to register a level of 52 in 3Q2016. This means that confidence has gained 24 points in total since 1Q2016.

The current level of the index indicates that slightly more than half of respondents are satisfied with prevailing business conditions.

The higher confidence was well supported by the underlying data, especially tendering price competition. “The less keen tendering competition lifted profitability somewhat. However, it is important to note that tendering competition can ease due to an increase in the number of tenders or a fall in the number of firms tendering or a combination of the two”, remarked Jason Muscat, Senior Industry Analyst at FNB.

Confidence was higher despite soft growth in construction activity. According to Statistics South Africa (Stats SA), growth in the real value of construction works slowed to 0.2% year-on-year in 2016Q2, from 4.6% in 2016Q1. On a quarterly basis, construction work was up 8%. “The annual result was somewhat weaker than what last quarter’s survey results suggested. Nonetheless, growth may continue in 2016Q3. However, a robust quarterly recovery as seen in 2016Q2 is unlikely,’ said Muscat. Pressure on public sector capital expenditure due to fiscal concerns as well as mining companies’ reluctance to embark on costly capacity expansion projects will weigh on construction activity over the medium term.

While growth in construction activity remained under pressure, respondents noted that the lack of demand for new work is becoming less of a business constraint. “This possibly reflects some work coming through, likely from the renewable energy sector. However, this may not be enough to support the entire industry”, added Muscat.

In conclusion: While less keen tendering price competition lifted confidence in 3Q2016, the subdued growth in construction activity remains a concern. A marked slowdown was registered in the growth in construction works in 2Q2016.The survey suggests that similar low growth can be expected for 3Q2016.

Visit the FNB Economics blog at http://blog.fnb.co.za/category/economics and consider using our free e-mail service.

About the survey:

The FNB/BER civil confidence index can vary between a maximum of 100 (which indicates that all respondents were satisfied with prevailing business conditions) and a minimum of zero (indicating that all respondents were dissatisfied). A level of 50 indicates that the respondents are equally divided between those satisfied and dissatisfied.

The fieldwork of the second quarter survey was conducted between 25 July and 29 August 2016.

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