South Africa’s building sector is expected to contract further in the second quarter.
The First National Bank (FNB) and Bureau for Economic Research (BER) Building Confidence Index, had already reached a two-decade low of 13 points in the first quarter of this year, down from 25 points in the fourth quarter of 2019.
The drastic reduction followed a rise to 25 basis points in the fourth quarter of 2019.
The current level of the index indicates that close to 90% of respondents are dissatisfied with the prevailing business conditions, and all six subsectors surveyed have registered a lower confidence.
The subsectors were led by architects (-27 basis points) and main contractors (-16 basis points).
In addition, quantity surveyor confidence is at its lowest on record, with no respondents in the building material manufacturing sector satisfied with business conditions. Main building contractor confidence fell to 17 basis points in the first quarter, down from the 31 recorded in the last quarter of 2019.
This, a statement on Tuesday lamented, is the lowest level of the index since the third quarter of 1999.
The lower confidence is owing to a deeper contraction in building activity, it added.
“The survey results toward the end of 2019 were reasonably upbeat with regards to the growth in building work. However, this seems to have been an outlier. Activity in 1Q2020 has fallen once more to a multi-year low,” said FNB property economist Siphamandla Mkhwanazi.
He added, moreover, that activity growth worsened in both the residential and nonresidential sectors.
The outlook for building activity also soured, and a higher percentage of respondents indicated that the lack of new building demand was a business constraint this quarter.
According to Mkhwanazi, “this implies that, on top of the weaker activity this quarter, the state of company order books suggests that the amount of work available over the short-to-medium term is disappointing”.
The downbeat prospects for building demand are reiterated by the results from the building pipeline, where the average activity for both architects and quantity surveyors was sharply lower, ultimately weighing on confidence.
The sentiment dropped to 12 points for architects and for quantity surveyors the figure declined to four. Mkhwanazi lamented that “this is a dramatic deterioration compared to the second half of 2019”.
“It is difficult to see an improvement in the fortunes of the building sector if plans for new/expansion work are this scarce.”
As a result of the malaise in the building sector, upstream industries also suffered, where building material manufacturers and hardware retailer confidence were at 0 and 24 basis points, respectively.
“Needless to say, that building material manufacturer confidence is nonexistent. Prolonged weak domestic demand and rising input costs have taken their toll on this sector,” remarked Mkhwanazi.
The building subcontractor confidence declined to 20, from 33 in the fourth quarter of 2019.
Overall, the FNB/BER Building Confidence Index decreased by 12 points to 13 in the first quarter owing to a sharp deterioration in building activity growth, production and sales.
In addition, the rating of insufficient demand as a constraint revealed that order books (future work) are also under strain.
“Last quarter, we saw a rise in activity but cautioned against its longevity. It seems this was prudent. As has been the case for some time, domestic economic conditions have not been conducive to growth in the building sector,” Mkhwanazi pointed out.
The spread of Covid-19 and the national lockdown that will take place between March 26 and April 16 are expected to have a significant further negative impact on South Africa’s economic growth.