The Afrimat Construction Index (ACI) declined by 8.6% in the first quarter of 2023 amid a weak economy and continued interest rate hikes.
Economist Dr Roelof Botha, who compiles the composite index of the level of activity within the building and construction sectors on behalf of Afrimat, said yesterday that the poor performance of the economy over the past two quarters was evident in construction sector activity. This comes as marginal growth was seen in real GDP of 0.4% quarter-on-quarter.
He said the year-on-year decline in the ACI was more muted, with the index declining by 3.4%, compared to GDP growth of 0.2%.
A highlight of the first quarter reading was the consolidation of positive growth for value added by the construction sector, with real expansion recorded both on a quarter-on-quarter and year-on-year basis.
Botha said compared to the first quarter of last year, that is, year-on-year, the outstanding performances were the increases of almost 12% in construction sector employment and more than 4% in value added by the sector. Two other indicators also recorded positive growth rates, namely retail trade sales for hardware and sales of building materials.
Botha said it was evident that the results of the ACI in the first quarter compared to the fourth quarter of last year were mainly influenced by sharp declines in the values of building plans passed and buildings completed in the larger municipalities of South Africa.
Construction sector activity had been hit hard by the increases in the SA Reserve Bank’s repo rate since the end of 2021.
“The Monetary Policy Committee of the Reserve Bank seems to have overplayed its hand in continuing to raise the official bank rate against the background of a pronounced drop in consumer and producer price indices,” he said.
On a positive note, the economist was confident that the rate hiking cycle was nearing its end, with both the producer price index (PPI) and the consumer price index (CPI) having peaked and beginning to enter a downward trajectory.
“The PPI has dropped from a high of 18% in July last year to 8.6% in April 2023, a decline of 52%, whilst the CPI is down from a peak of 7.8% to 6.8% currently, a drop of 12.8%.”
Another positive development was the increase in the ratio of capital formation to GDP in both the private and public sectors during the first quarter of 2023.
“Although the current combined level of 15.1% remains well below the average for emerging markets, the upward trend is encouraging,” Botha said.
More good news was that the government had effectively admitted its negligence in the areas of maintaining and expanding the country’s infrastructure by creating two crisis committees – the National Energy Crisis Committee and the National Logistics Crisis Committee – to deal with these challenges.
Botha said that a much greater emphasis on private sector involvement in the planning and execution of infrastructure maintenance and development would hopefully pave the way for a revival of construction sector activity in South Africa.