Johannesburg - Increased construction activity, possibly partly because of election-related capital expenditure, unexpectedly pushed confidence in the civil construction industry higher in the second quarter of this year.
The latest FNB/Bureau for Economic Research (BER) civil confidence index released yesterday showed that confidence improved by 13 points to 41 points on a 100-point scale in the second quarter.
Jason Muscat, a senior industry analyst at FNB, said while lower construction activity weighed on confidence in the first quarter of this year, the opposite was true in the second quarter “as activity rebounded nicely” to boost confidence in the quarter.
The index has returned to almost the same level registered in the fourth quarter of last year. However, FNB/BER said despite the higher confidence, the current level of the index indicated that almost 60 percent of respondents were dissatisfied with prevailing business conditions.
Despite the rise in construction activity, profitability also came under renewed pressure amid more intense tendering price competition.
“What we possibly saw this quarter is a combination of election-related capital spending, as well as a rush to complete projects before the municipal financial year-end in June. This is unlikely to be sustained,” Muscat said.
FNB/BER said data by Statistics SA showed that the real growth in construction works moderated to 6.1 percent year on year in the first quarter of this year from 6.6 percent in the fourth quarter of 2015, which was broadly in line with last quarter’s survey results.
Muscat said if the second quarter’s survey results were anything to go by, it was likely the growth in construction works picked up again.
However, the outlook remains downbeat, particularly with the pressure on government finances and concerns about the mining sector.
FNB/BER reported that respondents expected a slowdown in activity in the next quarter. They said the rating of insufficient demand as a business constraint, which was a proxy for the health of the firm’s order books, remained high.
Muscat said one possible source of work was the renewable energy sector, but the extent to which it would buoy the construction sector was uncertain.
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