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Increase in building sector confidence is unlikely to improve activity levels

Building contractors

The FNB/BER Building Confidence Index rose to 35 index points in 3Q2017, from 32 in 2Q2017. Despite this improvement in confidence there are still indications that more than 60% of respondents are dissatisfied with prevailing business conditions.

The higher confidence can be attributed to the increase in confidence registered for three of the six sub-sectors – led by building material manufacturers where confidence increased by 29 index points. The other two sub-sectors that showed improvement are hardware retailer confidence (18 index points from 13 in 2Q2017) and main contractor confidence level that gained eight points to a level of 44 in 3Q2017.

The increase in confidence in the building manufacturer sub-sector is underpinned by an improvement in production and export orders, however, sales in this sub-sector remained weak.

“The poor performance of building materials sales reflects the poor underlying conditions in the building sector in general,” remarked John Loos, property economist at FNB.

Despite a slight increase in the overall Building Confidence Index, the building sector likely continued to weaken in 3Q2017 with little (if any) sign of improvement in 4Q2017 due to low levels of activity across the board.

This is especially true of main contractors where residential and non-residential respondents report growth in activity close to multi-year lows. As mentioned the lower domestic sales of building material manufacturers are another indication of lower activity levels, in addition, a sharp deterioration in activity at the start of the building pipeline (architects and quantity surveyors) points to further weakness in building activity in coming quarters.

“One possible saving grace could be further interest rate cuts by the Reserve Bank, especially for the residential sector,” added Loos. “But this may not be the case if the broader economic performance, employment growth and consumer confidence remain poor.”

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