SA construction growth slows as constraints start to bite

Growth in South Africa’s construction industry has slowed unexpectedly in the third quarter of 2015, hurt by labour concerns and planning bureaucracy. According to Jason Muscat‚ Senior Industry Analyst at FNB, growth in construction activity remained weak in the third quarter of 2015‚ with the slowdown likely to deepen for the rest of 2015 and into 2016 if the demand for new construction work remains poor.

Following a gain of five points in the second quarter of the year‚ the FNB/BER Civil Confidence Index moved back by five points in the third quarter to 39‚ he said‚ adding that the current level of the index indicated that more than 60% of respondents were still dissatisfied with prevailing business conditions.

Confidence was lower amid continued weak growth in construction activity‚ which in turn weighed on profitability. “Moderating growth in capital expenditure by general government‚ the inability of public corporations to make noticeable progress on key infrastructure projects‚ labour concerns and lower commodity prices which are dampening demand for investment by the mining sector‚ and a slowdown in investment into renewable energy negatively affected construction activity in the third quarter of 2015‚” Mr Muscat said.

According to the South African Reserve Bank‚ annual growth in the real value of construction work moderated to only 0.3% in the second quarter‚ from 1.0% in the first quarter. “These results suggest that growth in construction work in 3Q2015 will likely be‚ at best‚ as weak as in 2Q2015‚” noted Mr Muscat.

He added that the outlook for the remainder of 2015 and into 2016 was for further weakening in construction activity. 83% of respondents cited the lack of demand for new construction activity as a constraint to business operations‚ the highest rating since the first quarter of 2012.

“This means that while many projects are now coming to an end‚ few new projects are being brought into the pipeline.” 

Muscat added that this was in line with the financial results of many of the listed construction firms‚ most of which reported a fall in the value of their order books over the past year.


Source: SA Commercial Prop-News

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