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Gross Fixed Capital Formation 1st Quarter 2026

Construction Investment Shows Early Signs of Stabilisation, But Recovery Remains Fragile

South Africa's first-quarter GDP results provide some encouraging signals for the construction industry, particularly when viewed alongside trends in Gross Fixed Capital Formation (GFCF). While overall economic growth improved to 0.6% quarter-on-quarter (seasonally adjusted annualised), investment activity remains the key area to watch for the construction sector. The return of the construction industry to positive growth during the quarter suggests that the prolonged decline in construction activity may be beginning to bottom out, supported by improving expenditure on non-residential buildings and construction works.

From a construction perspective, investment appears to be gradually shifting back towards productive infrastructure and fixed assets, although a weakening in business confidence to a level below 40 in Q2 2026 (the lowest since 2024Q3) is likely to dampen the current trajectory. After several years of weak capital formation, there are growing indications that public-sector infrastructure expenditure,  and selected industrial investments are beginning to support demand for construction services, albeit at low levels. Residential investment remained dismal falling by double digit rates for the past 4 quarters. Investment in non-residential buildings recovered with a moderate 2.5% y-y increase, with investment in construction works showing the best performance, up 5.1% y-y. This aligns with the recent increase in provincial and local government infrastructure expenditure, stronger non-residential building approvals in several provinces and an improvement in civil engineering activity linked to transport (especially SANRAL related road projects), water, energy and logistics infrastructure. Overall the rate of decline in construction, slowed to -1.7% y-y in Q1, (constant 2015 prices), from -5.5% in 2025Q4. 

However, the broader investment environment remains challenging. South Africa's investment ratio remains well below levels typically associated with sustained economic expansion, and private-sector investment continues to recover only gradually. Weak manufacturing performance during the quarter is particularly concerning, as industrial expansion is typically a major driver of demand for factories, warehouses and related construction activity. The absence of a strong manufacturing recovery suggests that much of the current support for construction is still coming from infrastructure programmes and selected private developments rather than a broad-based investment cycle.

The composition of investment is therefore becoming increasingly important. Encouragingly, the latest data suggests that construction works and non-residential buildings contributed positively during the quarter, indicating stronger activity in infrastructure, industrial, commercial and institutional developments. By contrast, investment in machinery and equipment remains more closely linked to the performance of sectors such as manufacturing and mining, where growth remains relatively subdued.

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