Building recovery still weak

Confidence in the building sector increased in the fourth quarter, but almost seven out of 10 respondents to the FNB/Bureau for Economic Research (BER) building confidence index survey still rate prevailing business conditions as unsatisfactory.

The index rose 6 points to 32 on a 100-point scale during the current quarter, after losing ground over the previous two quarters.

FNB/BER reported in March that the building industry had bottomed and was now slowly recovering, when the index jumped to 31 on a 100-point scale in the first quarter from 19 in the fourth quarter of last year. However, the index then declined to 27 in the second quarter and dropped a further 1 point to 26 during the third quarter.

The increased confidence in the industry in the current quarter was attributed to sharply higher confidence levels among retail merchants and subcontractors during the quarter, which boosted the overall index.

However, FNB/BER said the building sector recovery remained sluggish despite the uptick in confidence.

FNB chief economist Cees Bruggemans said the recovery’s sluggish pace continued to disappoint, especially among non-residential contractors, keeping their business confidence low.

Confidence levels among building material retailers leapt by 34 points to 47, subcontractor confidence was up by 13 points and main contractors by 2 points. Declines were posted by architects (minus 1), building material manufacturers (minus 6) and quantity surveyors (minus 10).

Bruggemans said the building recovery gained some steam in the fourth quarter as confidence rose, but overall confidence remained largely flat if the mainly seasonal effect of the sharp rise in confidence among retail merchants was stripped out.

This suggested the recovery was still fragile, and likely moving sideways as opposed to upwards, he said.

In addition, he said the building pipeline remained weak, as indicated by activity among architects and quantity surveyors, which marred the outlook for the sector.

FNB/BER said the sharp rise in confidence among building material and hardware retailers was not supported by an improved realised performance, but rather by the expectation that activity levels would be much better in the next quarter.

Confidence among main contractors rose to 28 during the fourth quarter. Residential business confidence posted the biggest improvement to reach a four-year high, while confidence among non-residential main contractors remained stable.

FNB/BER said the non-residential sector had continued to outperform the residential sector in terms of activity levels, despite performing worse than expected.

Subcontractor confidence increased from 29 points in the third quarter to 42 points in the fourth.

FNB/BER said the recovery in activity among non-residential subcontractors was more pronounced, which was consistent with the recovery in main contractor activity that had filtered down to subcontractors.

FNB/BER said the prospects for future work remained poor despite the mild improvement.