Sentiment in the building construction sector is expected to stay depressed for a prolonged period of time as it remained firmly in the contractionary territory in the first quarter of 2023.
The FNB/BER Building Confidence Index released yesterday remained stagnant at 33 points in the first quarter of this year due to the negative prevailing economic climate.
According to the FNB, this means that almost 70% of respondents were dissatisfied with prevailing business conditions.
However, FNB said the downbeat building sentiment belied a noticeable improvement in activity this quarter.
Regarding the sub-sectors, quantity surveyors declined by 2 points, main contractors by 3 points, hardware retailers by 4, architects by 8, and building material manufacturers 14 points, while sub-contractors increased by 27 points.
FNB said the downbeat sentiment reflected heightened pessimism among non-core building sub-sectors such as hardware retailers and building material manufacturers.
In contrast, the sentiment of main contractors was more or less at its long-term average while that of building sub-contractors was at a 15-year high.
According to FNB, activity among the main contractors rose significantly in the first quarter, however, confidence edged lower to 43 points.
The latest data from Statistics South Africa (Stats SA) revealed that, after falling by an average of 8% year-on-year in the first half of 2022, the real value of building investment rose by 2.8% and 4.2% in the third and fourth quarters of 2022, respectively.
Economic growth data from Stats SA also showed that construction was the worst in shape in the fourth quarter of 2022, remaining 23.1% smaller than what it was before the pandemic, and marking construction’s sixth consecutive year of economic decline.
FNB senior economist Siphamandla Mkhwanazi said this quarter’s survey results pointed to a continuation of this momentum in the first quarter.
“It is becoming clearer that the recovery in building work is gaining traction. There are, however, two important nuances to this.
“Firstly, it comes off an extremely low base. Secondly, while activity was better in all provinces, the Western Cape seems to be faring disproportionately well.
“This is in step with the Western Cape property sector, which has benefited from the semigration of individuals and businesses over the last few years.”
The sub-contractor confidence registered a level of 57 points in the first quarter, the highest in almost 15 years due to a sharp increase in activity.
“Sub-contractor activity fared exceptionally well this quarter, most likely off the back of household and business investment in alternative energy sources following the high degree of load-shedding for most of last year and so far in 2023,” Mkhwanazi said.
“The most important conclusion from the survey results this quarter is the continued rise in building activity. This is largely being supported by broad-based investment in load shedding mitigation measures and energy self-generation, as well the continued robust demand in the Western Cape.”
Business sentiment is still low against the backdrop of persistent power cuts, low growth in private sector fixed investment, challenges in the logistics network and concerns about current and future weather conditions.
Momentum Investment economist Sanisha Packirisamy said energy insecurity was greatly impeding the business environment because of load shedding, as businesses were procuring large volumes of diesel each month to ensure that they remain operational during power cuts.
Packirisamy said private sector investment was unlikely to ramp up in 2023 after private businesses declined by 1% quarter-on-quarter in the third quarter of 2022.
“Low levels of growth in actual investment and negative sentiment from the private sector do not bode well for gross fixed capital formation (outside of critical energy infrastructure spending) and ultimately trend growth given that the private sector accounts for the bulk of fixed investment in South Africa,” she said.
BUSINESS REPORT