Building Completions underperforming plans passed, indicative of a loss of confidence
August was characterised by a significant improvement in residential building plans passed, presumably because of the end of supply shortages caused by the metal workers strike in July. However, there was a countervailing sharp fall in non-residential plans passed, especially in office and banking and commercial shopping developments, indicative of a loss of confidence in the economic outlook.
The decline in growth of non-residential building plans passed in recent months has been marked. In addition, in respect of both residential and non-residential buildings, growth in building plans completed appears to have fallen back to levels below what one might have anticipated on the basis of building plans passed. This suggests that the tumultuous industrial relations environment of the past year and its adverse impact on economic growth has progressively dented confidence amongst developers to go ahead with plans that have already been passed.
Overall building activity is still unlikely to drop off dramatically, especially with interest rates at levels still as low as they are. Nonetheless, the building industry could have been a much more important stimulator of growth in a more favourable economic environment.
The inference to draw is that the building industry is certainly not down and out, but is progressively underperforming its true potential. There appears to be a feedback loop between a loss of business confidence and the cancellation of building projects which in turn contributes further towards lower investment, overall economic growth and a further deterioration in business confidence. It represents an example of how slower economic growth seems to build momentum of its own.
Without doubt, the aggressive industrial action seen earlier this year has had a very significant negative knock-on effect throughout the economy. One can only hope that the cessation of such strike activity might put an end to this loss of confidence. However, even here, the continuing strike in the Post Office is not helping matters. Worse still, one fears the worst for industrial relations peace in the public sector in the face of demands for 15% wage increases by public sector unions on the one hand and the imperative on the National Treasury to keep a tight rein on the government's finances in the coming year in order to prevent further downgrades in the country's credit rating and resultant higher interest rates.