Construction recovery slows in Q4 2012

The FNB/BER construction confidence index fell to 36 points in the fourth quarter of last year‚ having hit a four year high of 42 index points in the third quarter.

The survey shows construction activity in South Africa slowed amid low levels of profitability and increased competition. Employment in the sector also eased slightly.

Overall‚ the survey results suggest the recovery in the construction sector - especially in activity - likely slowed during the last quarter of the year.

Apart from more moderate activity levels‚ fiercer competition for tenders combined with weak overall profitability to contribute to the drop in confidence.

“Demand for new construction work remains fragile‚ resulting in somewhat more competition for projects that are eventually put out on tender‚” Cees Bruggemans‚ consulting economist at First National Bank‚ said on Thursday.

The survey said that according to the South African Reserve Bank‚ construction activity rose by an annualised 7% in the third quarter of last year‚ up from 4.9% in the second quarter.

That was in line with the survey results‚ but the fourth quarter results pointed to a slight moderation in construction activity growth.

However‚ the survey said existing activity levels in the industry remained higher than at the start of 2012. It also said construction work likely came from government spending in the fourth quarter‚ especially the provinces.

It said according to National Treasury figures‚ capital expenditure by the provinces remained “reasonably robust” in the third quarter of last year‚ growing by 12.5% year-on-year. But capex by municipalities lagged.

Construction work by public corporations‚ particularly Eskom‚ Transnet and Sanral‚ continued. However‚ private sector investments in construction projects “probably underperformed to an even greater extent” because of the “unstable” conditions in the mining sector.

The FNB/BER construction confidence index can vary between 100 points‚ indicating all respondents were satisfied with prevailing business conditions‚ and zero.

The current reading of 36 index points meant more than six out of 10 respondents were dissatisfied with business conditions during the fourth quarter of last year.

The outlook for the first quarter of this year was more positive‚ with construction activity and profitability projected to rise. However‚ employment prospects were expected to deteriorate further.