Sentiment in civil construction remains depressed in spite of quickening pace of recovery | Infrastructure news

Sentiment in the civil construction sector has remained depressed as a majority of businesses are dissatisfied with prevailing business conditions in spite of the quickening pace of the recovery.

The FNB/BER Civil Confidence Index remained firmly in the contractionary territory in the second quarter of 2023, edging 1 index point lower to 41, from 42 points in the first quarter.

Real economic activity in the construction sector had increased further in the first quarter of 2023, reflecting increased civil construction as well as residential and non-residential building activity.

The fieldwork for the second quarter survey was conducted between May 10 and 30 by Stellenbosch University’s Bureau for Economic Research on behalf of FNB.

FNB senior economist Siphamandla Mkhwanazi said the current level of the index meant that slightly less than 60% of respondents were dissatisfied with prevailing business conditions.

Mkhwanazi said broader concern about threats to the economy, a much weaker rand at the time of the survey, and diplomatic missteps likely contributed to the relatively subdued sentiment, given notably better activity.

“The slight deterioration in sentiment masks a significant increase in activity, led by private investment in energy generation,” Mkhwanazi said.

“Importantly, the survey indicates that work will remain well supported into next quarter.”

Irrespective of the largely sideways move in sentiment, FNB said the pace of the recovery in civil construction activity had quickened in the second quarter. The index measuring activity growth was at its highest since 2007.

Mkhwanazi said they had been cautiously optimistic about the rise in construction activity over the past few quarters.

“The latest results provide an even stronger signal that civil contractors are noticeably busier than they have been in a while. Part of this is due to increased public sector projects related to road and water infrastructure,” he said.

“Crucially, the development of alternative energy infrastructure by the private sector seems to be providing the bulk of the boost.”

Statistics South Africa (Stats SA) reported that the real value of construction work increased by 5.7% year-on-year (y-o-y) in 1Q2023, from 4.8% y-o-y in 4Q2022. According to the survey results, growth will likely be even more robust in 2Q2023.

In addition to the higher activity this quarter, respondents are equally optimistic about prospects for 3Q2023. On a more negative note, profitability worsened somewhat, even though activity fared well.

“Compared to the robust improvement in construction work, overall profitability disappointed. This could be due to several factors, including continued margin pressure, which is not uncommon so early in a recovery, and increased input costs,” noted Mkhwanazi.

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