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Gross Fixed Capital Formation 2nd Quarter 2024

Investment in Construction contract alongside an overall cooling off in Gross Fixed Capital Formation.  

Investment in construction fell by 8 percent y-y in real terms (not seasonally adjusted) in the 2nd quarter of 2024, following a (revised) 12 percent contraction in Q1. Residential investment declined by 7,3 percent following a 16 percent contraction in Q1, Non-Residential investment declined by 3.7 percent (from a 14.5 percent contraction) while the rate of decline accelerated in Construction Works from -7.9 percent in Q1 to 9.9 percent in Q2. This translates to a R4.8bn loss in real terms compared to the same period in 2023, and a 10 percent decrease for the first half of 2024 compared to 2023, or R12.4bn. The construction labour force has lost 100 000 job opportunities, or 7.7 percent y-y in Q2, to 1.2 million, with the steepest decline shown in the Western Cape (coming off a higher base). Provinces that showed a stronger labour force during Q2 include Kwazulu Natal, North West Province and Mpumalanga.

The robust increase in civil tender values during 2023, is yet to translate to higher investment, while the annual increase slowed to 5 percent y-y (nominal) in the first six months of 2024 following the 26 percent increase in 2023.  The rate by which civil projects are being postponed is concerning as it increased by 85 percent affecting over 110 projects. The grim outlook for the residential market continues, with robust declines in approvals continuing across all provinces, while some provinces showed increased demand in selected non-residential market segments, such as Retail in Western Cape, North West and Gauteng, Industrial in North West and Northern Cape and Office space in Mpumalanga.  As the pipeline for private sector building remains severely depressed, investment growth is likely to remain negative, although improved market sentiment (linked to the GNU) and improved prospects for lower interest rates could support an improved outlook for the sector in 2025, although construction work is likely only to impact in 2026 given the lead time from approvals to construction.

The rate of decline accerlated to 7.4 percent in terms of overall Gross Fixed Capital Formation with investment by general government down 8.2 percent, a similar decline by the private sector and a weakening by SOE's to -2.5 percent from 2.9 percent in Q1.   Investment as a percentage of GDP deteriorated subsequently deteriorated further to 14.0 percent from 14.3 percent.  The contribution by the construction sector to total investment, slowed to 34 percent and to a historical low of 4.8 percent as a percentage of GDP.

On the upside, the value add of construction measued on a q-q basis (seasonally adjusted an annualised) rose 0.5 percent in Q2, after contracting for four consecutive quarters and being the worst performing sector in Q1. GDP expanded by 0.4 percent, supported by a 3.1 percent increase in Electricity, Gas and Water (the strongest increase in 16 years), 1.3 percent in Finance and Real Estate, 1.2 percent in Trade Services, a modest 1.1 percent epxansion in Manufacturing, and 0.5 percent in Government Services.  It is disheartening that despite the renewed focus on infrastructure expenditure across all government levels, that the construction sector remains under pressure in terms of public sector infrastructure expenditure.  Business Confidence edged up to 38 in Q3 (the best level since the end of 2022), from 35 in Q2 and 30 in Q1. This is 15 percent higher compared to the 3rd quarter in 2023, and some evidence that market sentiment is steadily improving, althouhg it remains below an "investment stimulative" level of at least 50.

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