Civil construction confidence took a knock in the first quarter or 2010, FNB said on Monday.

The FNB Civil Construction Index declined from an index value of 39 in the fourth quarter of 2009 to a level of 25 in the first quarter of 2010.

This compares with an index of 60 recorded in the first quarter of 2009.

"The sharp drop in confidence appears to be related to a deterioration in overall business conditions and the scarcity of new work," Cees Bruggemans, chief economist of First National Bank, said.

Reports received from participants to the first quarter 2010 business survey identified a number of factors that had resulted in a tougher business environment experienced during the survey quarter.

Firstly, the contraction in the overall economy had resulted in a marked decline in private sector effective demand for civil construction works. Secondly, infrastructure projects associated with the soccer World Cup were nearing completion. Thirdly, stemming from the impact of the global financial crisis, projects or portions thereof commissioned by public entities such as Eskom had been postponed or rescoped.

Fourthly, expenditure at the local authority level had slowed down due to a notable slower growth in income and rising debt levels of taxpayers to municipalities which was currently above the two percent of gross domestic product (GDP) level.

Fifthly, inefficiencies at provincial and local authority level resulted in long periods elapsing before tenders were adjudicated.

Bruggemans said that the growth in construction activity executed during the first quarter of 2010 deteriorated compared to the fourth quarter of 2009 and a net 69 percent of the respondents indicated that their work volumes were well below the same quarter a year ago.

"Tendering competition remained tight and a net 85% of the respondents reported that it was more intense than in the corresponding quarter a year ago," Bruggemans said.

At that stage the figure stood at a net 64%, clearly reflecting the deterioration in business conditions and the constrained availability of new projects over the past year, he said.

In view of the weaker effective demand, margins had come under increasing pressure and were adversely affecting the growth in the profitability of respondents to the survey.

Survey respondents reported that due to the decline in the availability of new construction projects, they were forced to resort to the retrenchment of labour during the first quarter of 2010.

Bruggemans said that as far as the business outlook for the second quarter of 2010 was concerned, participants to the survey indicated that overall business conditions were likely to remain unfavourable and that no reversal in the sector's fortunes was expected over the short term.

"There are likely to be significantly more job losses in the industry during the second half of 2010," Bruggemans said.

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