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Construction Monitor May 2024

In 2024, the US Federal Reserve is expected to only cut interest rates by December due to stronger consumer inflation, but several cuts are predicted in 2025-26. As global political uncertainty and numerous elections will influence fiscal and trade policies, global growth is forecasted to slow to 2.5% in 2024.  In South Africa, consumer inflation eased to 5.2% year-on-year in April, and the SARB maintained the repo rate at 8.25%, projecting inflation to fall to 4.5% by mid-2025. GDP growth is expected to be 1.2% in 2024. South Africa's retail spending rose by 6% in March 2024, while construction material sales and vehicle sales declined. Eskom's electricity distribution increased, improving manufacturing production despite a 6.4% year-on-year decline in March. The trade balance fell by 51% in Q1 2024, though the fiscal health improved with a primary budget surplus. The 2024 elections caused political shifts, with the ANC losing ground and the rise of the MK party introduces heightened uncertainty as the country treads in unprecendented territory in an already pracarious political landscape.

Investment in construction fell to a dismal 4.9 percent of GDP in Q1 of 2024, following an 11.8 percent y-y contraction in real terms. The construction labor force fell by 8% q-q in Q1, with significant declines in Gauteng and Eastern Cape, but Western Cape and Mpumalanga bucked the trend over a year-on-year basis. Wholesale trade sales of construction materials dropped 4%, while construction material prices increased by 7.2%. High-impact project announcements totaled R93 billion in the first five months of 2024, including major projects like the Microsoft Data Centre and the Umkhomazi Dam.  Private sector residential building approvals declined by 13.6% in March 2024. The contribution by the public sector in building construction increased to 26% by April 2024, as tender values rise, and private approvals decline. Public sector building projects however face challenges like payment issues and construction mafia demands. The building industry's outlook remains weak, with recovery expected by 2026, pending further interest rate developments. In April 2024, the value of awarded civil projects fell by 6% year-on-year, but tender activity improved by 25%. Kwazulu Natal, Limpopo, and Mpumalanga saw significant increases in tender values, while Gauteng and North West declined. Postponed civil projects more than doubled, and road and water project cancellations increased significantly, posing challenges for the civil industry. The outlook for the construction sector is shaped around a less pessimistic outlook for the civil sector, but with some downside risks, with significantly weaker conditions prevailing in the building sector.

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