Building confidence index remains stable

The building construction sector has seen a drop in sentiment, as indicated by the FNB/BER Building Confidence Index, which decreased by 1.23% in the fourth quarter of 2022. This decline brings the index to a historically low level, remaining stable throughout much of the year. To delve deeper into these results, CNBC Africa spoke with Craig Lemboe, Senior Economist at the Bureau for Economic Research, to analyze the latest building confidence data. Despite a seemingly minor 1% decrease, Lemboe highlights the significance of the sub-indices, revealing interesting shifts within the sector. Notably, the overall index has hovered around 33 for the majority of the year, indicating a prevailing sense of pessimism among building contractors. Lemboe emphasizes that the sector is struggling, with half of the surveyed sectors reporting lower confidence this quarter while the other half exhibited higher confidence. This conflicting sentiment underscores the challenges facing the industry and the lack of sustained growth that could support broader sectoral recovery. The varying levels of confidence among different sectors reflect the complexities and uncertainties within the construction industry. One key aspect contributing to this disparity is the ongoing subdued performance of the non-residential sector. Factors such as reduced office occupancy and increased online shopping have dampened demand for commercial properties, impacting the outlook for main contractors significantly. In contrast, the residential sector, particularly in regions like the Western Cape, has shown signs of resilience driven by factors like efficient municipal governance and inward migration. While these localized improvements are promising, Lemboe cautions against extrapolating them to represent a national trend. Looking ahead to 2023, uncertainties persist regarding the sector's recovery trajectory. Lemboe indicates that GDP growth will play a crucial role in determining the building sector's performance, given its historical correlation with economic expansion. Additionally, he notes that the sector has been lagging behind other industries in recovering from the pandemic-induced downturn. Despite potential signs of marginal improvement, Lemboe anticipates that the building sector will continue to face challenges in the coming year, with growth rates likely to remain negative, albeit less steeply than in previous quarters. The outlook for architects and building materials suppliers also remains uncertain, with the potential for a modest recovery contingent upon broader economic conditions. While the sector may see some gradual improvement towards the end of 2023, Lemboe emphasizes that it will still operate at a reduced capacity compared to pre-pandemic levels, highlighting the prolonged nature of the sector's recovery amid challenging economic conditions.