Confidence in construction down in first quarter

Weaker construction activity in the first quarter of the year pushed the FNB/BER civil confidence index down 14 points from 42 points in the fourth quarter last year to 28 points, the lowest level of confidence in the industry since the end of 2011.

The fall in confidence out of a total 100 points reflected a "marked deterioration" in activity and a more competitive tender environment, the survey said. It also indicated that more than 70% of respondents were not satisfied with prevailing business conditions.

"The lower confidence is explained by a noticeable weakening in construction activity," Jason Muscat, senior industry analyst at FNB, said on Wednesday.

"The current survey results suggest that, following the mild uptick in the fourth quarter of 2015, growth in construction works likely eased in the first quarter (of this year). As a consequence … tendering competition intensified for those projects that are available," he said.

According to the Reserve Bank, growth in the real value of construction works accelerated to 4% year-on-year in the fourth quarter of last year, from 3.7% in the third quarter of last year.

Activity was mainly supported by provinces and municipalities, while private sector capital expenditure (capex) — particularly in the mining sector — was weak. But despite lower industry activity and higher competition levels overall, profitability was relatively stable, the survey said.

It said respondents expected activity to improve next quarter. However, other data "suggested" the remainder of the year might see construction work slow further, given soft demand.

Meanwhile, the FNB/BER survey said 85% of respondents rated insufficient demand for new construction work as a business constraint — a four-year high. This could reflect the "downbeat near-term outlook for public-sector capex", Mr Muscat said. "This is especially relevant given that the public sector remains the construction industry’s single biggest client."

Source: Bdlive.co.za

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