In the 4Q24 the Afrimat Construction Index (ACI), which reflects the level of activity within South Africa's building and construction sectors, has improved for the third-consecutive quarter – the first time since the COVID-19 lockdowns, re-establishing a familiar trend in the construction sector. 

According to Dr Botha, the economist who compiles the ACI, the recent lowering of the repo rate, and, by inference, also the prime overdraft rate, has exerted a marginal positive impact on the ACI, with the YoY increase of 2.5 per cent outperforming the YoY real GDP growth rate of 0.5 per cent by a considerable margin. 

However, in terms of QoQ growth rates, the ACI only increased by 0.5 per cent, compared to 1.5 per cent for the economy as a whole. “This discrepancy can be explained by withdrawals via the new two-pot retirement system, as well as the two interest rate cuts of 25 basis points each during the end of 2024, which released a measure of pent-up demand for household consumption expenditure,” Dr Botha explained, adding that household consumption expenditure represents almost 65 per cent of GDP, whilst capital formation, which encompasses most construction activity, represents 14.5 per cent of total GDP.

During the fourth quarter of 2024, five of the 10 constituent indicators comprising the index had positive YoY readings, with four of the top-five ranked indicators remaining amongst the previous quarter’s top-five performers. Outstanding performers among the 10 indicators of the ACI were: 
• value of building plans passed by the metros and larger municipalities (6.8 per cent)
• value of building materials produced (6.7 per cent)
• value of building material sales (5.4 per cent)
• employment in construction (2.8 per cent)
• wholesale trade sales of construction materials (2.5 per cent)

“However, it is a point of concern that the real value of construction works remains in the doldrums, with a year-on-year contraction of 3.4 per cent in the fourth quarter in real terms. The public sector’s contribution to overall capital formation in South Africa has diminished quite dramatically since the onset of state capture and, more recently, the restrictive monetary policy stance, which took interest rates to their highest level in one-and-a-half decades,” said Dr Botha.

According to Dr Botha no doubt exists over the negative effects that record high interest rates have exerted on the economy, in general, and the construction industry, in particular. This is confirmed by several key economic indicators, most notably exceptionally high debt-servicing ratios and a persistent decline in the real value of credit extension. The S&P Global Purchasing Managers’ Index (PMI) for South Africa has been below the neutral 50-mark since the beginning of the year and capital formation declined by 3.7 per cent during 2024 – at a stage when investment in the repair and expansion of the country’s infrastructure has become a critical imperative.

On a positive note, inflation is under control, with the February reading of the CPI remaining at the bottom end of the inflation target range of 3-6 per cent. Lower producer prices, combined with declines in the oil price and a resilient rand exchange rate, should secure further interest rate cuts in the course of 2025.