Civil construction confidence drops more in fourth quarter

The FNB Civil Construction Confidence Index, compiled by the BER, dropped from a level of 69 in 3Q2008 to an index value of 60 in 4Q2008.

Cees Bruggemans, Chief Economist of First National Bank, said that the drop in confidence could be related to the fact that business conditions in 4Q2008 turned out well below expectations.

In particular, the growth in construction activity disappointed and a net 50% of the respondents reported that the 4Q2008 rate was below that of the same quarter a year ago. He added that comments received from respondents to the survey indicated that a number of factors could have contributed to this situation ranging from the current high level of interest rates, weaker private sector demand to shortages of public sector funding, poor administration and slow payments by government clients.

Bruggemans stated that in the light of reports of weaker overall demand levels, it was not surprising that respondents to the 4Q2008 survey indicated that they experienced a relatively sharp escalation in tender price competition during the quarter. For instance, whereas in the 3Q2008 a net 49% of the respondents indicated a keener tendering environment (compared to the same quarter a year ago), this figure jumped to 64% in 4Q2008.

The tighter demand conditions led to margin compression resulting in the overall profitability of construction companies that participated in the survey turning out well below expectations.

According to Bruggemans, the moderation in construction activity resulted in a net 7% of the survey respondents indicating that they were reducing the number of people employed in their organisations. Nevertheless, good quality skilled labour remains a constraint on companies and 84% of the respondents to the survey indicated that skilled labour shortages are hampering their construction activities.

Looking forward, he concluded that survey respondents did not expect a further deterioration in overall business conditions and construction activity levels in 1Q2009.
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