The Afrimat Construction Index (ACI) took a dip in the second quarter of 2017 but prospects seem poised to improve says renowned economist Dr Roelof Botha.

After reaching an eight-quarter high of 127 in the fourth quarter of last year, the ACI has now declined for two successive quarters to reach a level of 117 in the second quarter of 2017.

According to Botha the index was impacted by low levels of business and consumer confidence mainly influenced by a series of political shocks, including major changes to the executive leadership at National Treasury and the fiscal threat imposed by significant losses at a number of state-owned enterprises.

The construction sector nevertheless remains on a stronger footing than seven years ago, with the ACI having expanded by 17.7% since the third quarter of 2010 (the base period), almost 50% higher than the rate of growth of the economy as a whole over this period (in real terms).

Prospects are looking up

Botha believes that the tide may be turning for construction activity. “Fortunately, the SA Reserve Bank decided to ease the debt servicing burden of South African households and businesses, with a marginal decline in the repo rate having been announced in July 2017.

Due to a sharp retreat of inflationary pressures in the South African economy, further interest rate cuts are widely expected, which is likely to witness a return to a positive ACI trend before the end of the year”.

He adds: “Construction sector output is traditionally a lagged indicator of overall economic activity. Prospects are likely to improve into the second half of the year, as the country’s GDP starts to build momentum on the back of higher world growth, lower interest rates and the recovery of several key export commodities”.