Following a gain of 5 points in 2Q2015, the FNB/BER Civil Confidence Index moved back by 5 points in 3Q2015 to 39. The current level of the index still indicates that more than 60% of respondents are 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 3Q2015,” said Jason Muscat, senior industry analyst at FNB.
According to the South African Reserve Bank, annual growth in the real value of construction work moderated to only 0.3% in 2Q2015, from 1.0% in 1Q2015.
“These results suggest that growth in construction work in 3Q2015 will likely be, at best, as weak as in 2Q2015,” noted Muscat.
The outlook for the remainder of 2015 and into 2016 is for further weakening in construction activity. Eighty three percent of respondents cited the lack of demand for new construction activity as a constraint to business operations, the highest rating since 1Q2012.
According to Muscat, “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 is 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.”
In conclusion, growth in construction activity remained weak in 3Q2015. Consequently, profitability continued to be under pressure. Looking ahead, it is likely that the slowdown in construction activity will deepen for the rest of 2015 and into 2016 if the demand for new construction work remains poor.