Photo by: Bloomberg
The slowdown in construction activity is likely to deepen for the rest of this year and into 2016 if demand for new construction work remains poor, First National Bank (FNB) and the Bureau for Economic Research (BER) have warned.
This comes as the FNB/BER Civil Confidence Index fell by five points to 39 in the third quarter of the year, indicating that more than 60% of respondents were dissatisfied with prevailing business conditions.
Confidence was lower amid continued weak growth in construction activity, which, in turn, weighed on profitability.
“Moderating growth in capital expenditure by general government, the inability of public corporations to make noticeable progress on key infrastructure projects, labour concerns and lower commodity prices, which are dampening demand for investment by the mining sector, and a slowdown in investment into renewable energy, negatively affected construction activity,” FNB senior industry analyst Jason Muscat noted.
According to the South African Reserve Bank, yearly growth in the real value of construction work moderated to only 0.3% in the second quarter, from 1% in the first quarter.
“These results suggest that growth in construction work in the third quarter will likely be, at best, as weak as in the preceding quarter,” he added.
Eighty-three per cent of respondents cited the lack of demand for new construction activity as a constraint on business operations, the highest rating since the first quarter of 2012.
“This means that, while many projects are now coming to an end, few new projects are being brought into the pipeline. This is in line with the financial results of many of the listed construction firms, most of which reported a fall in the value of their order books over the past year,” Muscat said.