Construction confidence rose despite a drop in activity in the third quarter‚ First National Bank and the University of Stellenbosch’s Bureau of Economic Research said in the latest FNB/BER survey released on Thursday.The FNB/BER construction confidence index increased by six index points‚ from 45 to 51 in the third quarter.
This returns the index to the level registered during first quarter of 2013 and to a level significantly higher than those experienced in 2010-2012.
The current level of the index means that half of the respondents were satisfied with prevailing business conditions during the third quarter.
Confidence rose even though construction activity slowed unexpectedly during the quarter.
“Respondents expected a sharp jump in activity following a reasonably good second quarter. Instead‚ construction activity eased‚” FNB chief economist Sizwe Nxedlana said.
Public corporation capital expenditure (capex) continued.
However‚ industrial action likely weighed on construction activity during the quarter‚ particularly on bigger projects such as Eskom’s Medupi and Kusile power stations.
Expenditure on construction projects by general government likely slowed during the quarter‚ led by municipalities.
According to the National Treasury‚ municipal capex surged by just more than R20bn (almost 50% of the R41.6bn spent for the full year) in the second quarter in the run up to the end of their financial year.
Capex is unlikely to have continued at that same pace in the third quarter.
Private sector construction activity likely continued at a moderate pace.
However‚ the fall in activity in the third quarter did not significantly affect profitability‚ which remained largely unchanged from the second quarter.
“The ability of firms to maintain profitability despite slowing activity may have helped boost confidence‚” said Nxedlana.
Despite their disappointment‚ respondents remain relatively optimistic about prospects for the fourth quarter.
“The expectation that business conditions‚ construction activity and profitability will improve next quarter may also explain the rise in confidence‚” said Nxedlana.
Despite the improved confidence‚ construction activity moderated during the quarter.
However‚ firms were able to maintain profitability.
Looking ahead‚ business conditions‚ construction activity and profitability are expected to improve over the near term.
However‚ this will depend on capex from the public sector‚ which has started to slow in recent quarters.
The FNB/BER civil confidence index can vary between a maximum of 100‚ which indicates that all respondents were satisfied with prevailing business conditions‚ and a minimum of zero‚ indicating that all respondents were dissatisfied.
A level of 50 indicates that the respondents are equally divided between those satisfied and dissatisfied.
The fieldwork of the second quarter survey was conducted between July 29 and August 26.
