Monday, April 20, 2009

Civil Construction Confidence Remains Flat In 1Q20

By Cees Bruggemans, Chief Economist FNB, 15 April 2009

"The FNB Civil Construction Confidence Index, compiled by the BER, remained stable at an index value of 60 in 1Q2009. This compares to a value of 76 in the corresponding quarter a year ago. The index recorded a peak of 91 in 2Q2006. The BER business survey in the civil construction industry was conducted between February 2 and March 2, 2009.

Although the index has shown notable erosion over the past two years, business confidence in the civil construction industry remains well above the prevailing level in the building industry.
The latter industry is driven primarily by private sector demand and is comparatively more interest rate sensitive. Civil construction activity continues to benefit from the increased expenditure on infrastructure by general government and public corporations.

The growth in construction activity in 1Q2009 turned out below expectations, but more or less in line with workloads experienced in the previous quarter. In view of the foregoing, it was not surprising that the intensity of competition for new work experienced by participants in the survey remained unchanged. Nevertheless, the growth in profitability of respondents turned out below expectations, but only marginally weaker compared to the situation in 4Q2008. Employment levels showed little change during 1Q2009.

As far as the economic outlook for the sector was concerned, respondents to the survey expected business conditions to show an improvement in 2Q2009. Although the prospects in general remain positive, companies have expressed concern about the possibility that demand could soften over the medium term as the current adverse global developments impact on the domestic economy, inter alia, via the lower availability and higher cost of finance.

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Greg Beykirch
Financial Manager


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