Confidence in the civil construction industry has taken a dive in the last quarter of 2016, bringing it to its lowest since the beginning of 2012, barring Q1 of 2016.

Following a cumulative 24 index point rise during 2Q2016 and 3Q2016, the FNB/BER Civil Confidence Index shed 17 points to register a level of 35 in 4Q2016. This means that, barring 1Q2016 when the index was at 28, confidence is at its lowest since the beginning of 2012.

The fall in the index translates to 65% of respondents being dissatisfied with prevailing business conditions.

The lower confidence is a result of deteriorating growth in construction activity as well as keener competition. According to Jason Muscat, Senior Economic Analyst at FNB, “This was a perfect storm. The weaker activity as well as increased tendering price competition took its toll on overall profitability. In fact, the index measuring profitability declined to its lowest level in two years”.

“The survey results confirm what we have suspected for a while, that the civil construction sector remains under pressure,” notes Muscat.

According to Stats SA, annual growth in the real value of construction works contracted by 1.5% in 3Q2016, in addition to the 0.3% decline recorded in 2Q2016. A large part of the weaker demand stems from a fall in government capital expenditure amid mounting fiscal pressures.

Muscat states that “The slowdown in government investment is unlikely to be a short-term phenomenon, despite government’s recent commitment to invest more than R900 billion in infrastructure over the next three years”. Construction work by the private sector, mainly mining, was probably also lower during the quarter.

Despite the deterioration in their fortunes, civil contractors expect some improvement in activity in the next quarter. This is somewhat supported by the constraint measuring new demand which, although reasonably high, is below its five year average.

“While it is important to take note of respondents’ expectations, the underlying economic fundamentals do not suggest a much improved civil construction sector in the near future,” said Muscat.

Overall, the civil construction sector likely weighed on GDP growth in 4Q2016, with only a small chance of some respite over the short term given current economic conditions.