Construction Industry Forecast Report 2017Q2

Since our last report, Stats SA released the much anticipated GDP data for the first quarter of the year, which is used as the best gauge of the overall health of the economy, and it is fair to say that the South African economy is far from healthy. The economy slipped into a technical recession in the first quarter of the year, according to the data, with a 0.7 percent decrease (quarter on quarter, seasonally adjusted and annualised rate). Looking forward to 2017 for the South African economy, there remains an array of both up and downside risks to the growth outlook. Unfortunately the upside risks to the growth forecast have taken a back seat to some of the downside factors weighing in over the last few months. Locally, the main downside risk to the economy is policy uncertainty and instability. On a weekly basis it goes from bad to worse, with corrupt politicians having a complete disregard for the consequences of their actions and policies on the economy. Just in the last week (of writing this report), the disastrous mining charter as well as ridiculous comments from the current public protector. Rating agencies have already warned of the consequences for future rating downgrades.

The civil construction environment has come under pressure over the last few years, and has been characterized by a low growth environment, where competition is rife and margins have been low. Since our last forecast, the latest gross fixed capital formation figures for the first quarter of the year, show a further slowing in the expansion of the civil sector, with just 2.4 percent growth in real terms, down from 3.0 percent in the previous quarter. This is synonymous with our data on civil projects awarded, which was relatively buoyant in the first quarter, but may be short lived. The residential market has come under increased pressure over the last two years, with the performance of the sector as a whole closely linked to the performance of the overall economy, driven mainly by consumers. Higher interest rates, as well as low consumer confidence has dented the market as a whole somewhat, over the last year. Similar to the residential market, the non-residential sector has also come under increased pressure over the last year, given the poor performance of the economy. The dynamics are however slightly different, with non-residential property being more developer driven, with shopping centres and commercial property playing a key role. The drivers of the overall sector are still synonymous with the drivers of the residential market, with higher interest rates and lower consumer and business sentiment low.

© Industry Insight 2017