Civil construction confidence dropped further in the fourth quarter of 2008, according to the FNB civil construction confidence index released on Friday.

The index, compiled by the Bureau for Economic Research, dropped from a level of 69 in the third quarter to an index value of 60 in the fourth quarter of the year.

First National Bank chief economist Cees Bruggemans said the drop in confidence could be related to the fact that business conditions in the fourth quarter of the year "turned out well below expectations".

In particular, the growth in construction activity disappointed. A net 50 percent of the respondents reported that the fourth quarter rate was below that of the same quarter a year ago.

Bruggemans said comments received from survey respondents indicated that a number of factors could have contributed to this situation. These ranged from the current high level of interest rates, weaker private sector demand to shortages of public sector funding, poor administration and slow payments by government clients.

Given reports of weaker overall demand levels, it was not surprising that respondents to the fourth quarter survey indicated they experienced a relatively sharp escalation in tender price competition during the quarter.

"For instance, whereas in the third quarter a net 49 percent of the respondents indicated a keener tendering environment (compared to the same quarter a year ago), this figure jumped to 64 percent in the fourth quarter of 2008."

The tighter demand conditions led to "margin compression", resulting in the overall profitability of construction companies that participated in the survey turning out well below expectations.

According to Bruggemans, the moderation in construction activity resulted in a net seven percent of survey respondents indicating that they were reducing the number of people employed in their organisations.

"Nevertheless, good quality skilled labour remains a constraint on companies and 84 percent of the respondents to the survey indicated that skilled labour shortages are hampering their construction activities."

He concluded that survey respondents did not expect a further deterioration in overall business conditions and construction activity levels in the first quarter of 2009.


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