The Construction Industry Development Board (CIDB) says general building confidence fell by three points to 33 index points in the second quarter – its lowest level in six years.
This is measured by the CIDB small and medium enterprises (SME) business conditions survey. Confidence deteriorated as underlying indicators remained at weak levels relative to their long-term averages.
Additionally, constraints to operating conditions were largely unchanged, barring the rating of insufficient demand for new building work, which increased.
The CIDB SME business conditions survey is conducted quarterly among Grade 3 to 8 CIDB-registered contractors, both for the general building and civil industries.
The main indicator used for analysis purposes is business confidence, which indicates whether respondents find the current business conditions satisfactory.
Across the grades, the CIDB notes, the sharpest fall was registered by Grade 3 and 4 building contractors, but this was not supported by the underlying indicators.
For Grades 5 and 6, as well as Grades 7 and 8, the drop in confidence was marginal and came on the back of ongoing pressure on profitability and activity.
CIDB monitoring and evaluation project manager Ntando Skosana comments that business conditions were rather challenging during the second quarter. “Sentiment remained downbeat, with confidence levels persisting well below long-term averages.”
This against the backdrop of gross domestic product showing a fifth consecutive decline in output in the construction sector. Output fell by 1.9% quarter-on-quarter in the first quarter of this year.
The unfavourable outcome for this quarter’s survey results suggests that the negative trend in both building and civil construction activity continued into the second quarter, the CIDB says.
Meanwhile, at provincial level, the survey measured that Western Cape building contractor confidence ticked up by two index points to 56. Confidence was unchanged in the Eastern Cape, while it fell in KwaZulu-Natal.
“The worst outcome in confidence was recorded for Gauteng building contractors, where an overwhelming 83% of contractors were dissatisfied with business conditions. It is concerning that this level of confidence marks a joint all-time low,” says Skosana.
Civil engineering confidence also declined by three points during the quarter to 36, which came against the backdrop of greater profitability pressure during the quarter.
Among the grades, the decline in confidence for Grades 7 and 8 was in line with the broad-based deterioration in underlying indicators. For Grades 3 and 4, weaker sentiment came mainly on the back of notable profitability pressure.
Skosana points out the unchanged sentiment for Grades 5 and 6 was reflective of the mixed bag of outcomes in the underlying indicators.
“While there was some improvement in activity, pressure on profitability persisted. Further on the negative side, demand for construction work remained a key constraint, which points to possible pressures on activity in the near term.”
She adds that, from a provincial perspective, sentiment worsened, with the highest confidence level registered in the low 30s. “The provincial picture was rather disappointing, with sentiment deteriorating across the board. The highest level of confidence was recorded in the Western Cape at a weak 33 index points.”
For the rest of the provinces, confidence levels were in their 20s. The outlook is downbeat across all provinces, as indicated by the heightening constraints in demand for new work.
In conclusion, Skosana says the second quarter of this year continued to disappoint in both the building and civil engineering sectors.
The confidence levels in both sectors lie at 33 index points, which marks the worst level in six years. “Discouragingly, the outlook for activity remains clouded, as the constraint of insufficient demand for new work remains elevated in both sectors.”