News update: Construction sector contracted in January

 News update: Construction sector contracted in January

News update.

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Building completions measured in real terms plunged 45.9% year-on-year (y/y) in January, following December’s 11.2% decline, Investec economist Lara Hodes said yesterday.

A further 61.7% percent y/y drop in activity in the non-residential sector was largely responsible for January’s poor result. Activity in the residential building space also fell markedly from December’s 5.5 percent y/y lift.

Confidence among non-residential participants fell to 10 points, the second lowest recorded reading since 1999, suggesting 90 percent of respondents in this category were dissatisfied with current conditions, according to the BER.

The lack of new building demand remained a key constraint among players in the non-residential sector, building materials were in shorter supply, with 60 percent of respondents indicating that such shortages were hindering normal business operations. Supply chain hindrances as a result of lockdown restrictions likely exacerbated this.

Hodes said the non-residential pipeline was looking lacklustre and fell by a further -72.3 percent y/y in January, after plummeting by -54 percent y/y in December 2020. This did not bode well for this sector in the near-term.

“Indeed, office vacancy rates remain elevated, worsened by Covid-19 as many businesses have shut their doors, downscaled or transitioned to remote working,” she said.

“Government’s focus on infrastructure development as stated in its reconstruction and recovery plan is positive for the construction industry, however domestic growth remains at risk from heightened rotational load shedding and a slow vaccination rollout,” she said.

Chris Louw

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