Sentiment of businesses in the construction sector expected to recover in Q4
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SENTIMENT among businesses in the construction and building industry is expected to recover in the final three months of the year after losing momentum in the third quarter as most companies remained dissatisfied with prevailing business conditions.
Data from the FNB/Bureau for Economic Research (BER) yesterday showed that confidence in the industry backtracked in the third quarter of 2021, after recovering from the Covid-19 impact.
The FNB/BER Building Confidence Index registered a four index-point decline from 39 points in the previous quarter to 35 points in the third quarter.
FNB said 65 percent of respondents across the building sector pipeline were dissatisfied with prevailing business conditions as sentiment declined in all but one of the sub-sectors; hardware retailers.
After rising to 65 points in the second quarter, hardware retailer confidence gained a further 12 index points to reach 77 points in the third quarter, the highest level since 2007.
The index excluding the hardware retail and building material manufacturing sector – a measure of confidence in the “core” building sector – fell to 20 points from 25 points.
FNB senior economist Siphamandla Mkhwanazi said confidence in the core building sector had been noticeably lower than the overall composite index since the start of the year.
Mkhwanazi said this highlighted the persistent weakness in the larger brick and mortar segments.
“Sentiment in the building sector remains downbeat,” Mkhwanazi said.
“Part of this is due to the moderation in main contractor activity, which in turn has seen profitability come under noticeable strain.”
The survey showed that main contractor confidence slipped to 18 points in the third quarter, from 22 points in the second quarter, underpinned by a slowdown in activity.
The sub-contractor confidence also declined to 21 points from 29 points in the second quarter.
The FNB/BER index suggested that activity along the building pipeline also declined somewhat.
This saw the confidence of architects and quantity surveyors move five points lower to 18 and 21 index points respectively.
“Confidence is broadly lower than what the level of activity would suggest, and it is likely that other factors are also detracting from sentiment,” Mkhwanazi said.
“In particular, respondents have noted the delays in project approvals and pressure on fees.”
The confidence of building material manufacturers declined from 67 points to 55 points, underpinned by weaker production and a worse-than-expected outcome for domestic demand.
Mkhwanazi said other factors not explicitly captured by the survey had also dampened sentiment, but activity will improve with the easing of restrictions.
“These include delays in the municipal approval of projects, the so-called ‘construction mafia’ and government inaction regarding the roll-out of key building projects,” he said.
“This contrasts with the more upbeat results for the retail hardware sector. This, however, may not be sustained for much longer.”