At a high level, the civil construction index rose 5 points, from 39 in the first quarter to 44 in the second – still, however, indicating that the majority of respondents are not satisfied with prevailing sector conditions. While confidence improved, the underlying data remains concerning and we ascribe the increased confidence more to relief among respondents that conditions didn’t deteriorate further.

Survey participants remain particularly concerned about subdued demand, and as a result of work being scarce, tendering competition intensified notably. In an industry with already thin margins, this is particularly concerning and the profitability sub index deteriorated 2 points in the quarter.

Construction GDP expanded only 0.8% in the first quarter of 2015 from 3.5% in the last quarter of 2014. In line with pedestrian growth and margin compression, the industry shed almost 14 thousand jobs in 2014, and respondents indicated that the trend is likely to continue with the employment sub-index falling 22 points.

Yesterday’s quarterly bulletin from the reserve bank added a little more colour to the picture and indicated that South Africa’s gross fixed capital formation growth slowed from 2.6% in the last quarter of 2014 to just 1.8% in the first quarter – non-residential construction contracted -5.4% over the same period. The slowdown was particularly evident among state owned enterprises which contracted -0.6% and likely reflects large build projects coming to an end. Within the private sector, gross fixed capital formation from the mining sector, an important growth driver for the civil construction industry, tumbled 11.5% in the first quarter. Manufacturing investment expanded only 1.7% in the same period and together show the structural challenges within the country’s productive sectors.

Looking ahead, its difficult to see where growth is going to come from given subdued business confidence, excess capacity among the private sector and funding constraints among the public sector. As such, we expect conditions for the industry to remain difficult over the medium term.

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