A RECOVERY in the construction sector is gaining momentum but remains fragile, First National Bank and the Bureau for Economic Research said on Monday.

The FNB-BER civil construction confidence index rose for the third consecutive period, from 34 index points to 38 during the second quarter of the year.

This is the highest level the index has reached since the end of 2009.

The South African construction industry has been experiencing a severe slump, with industry titans reporting losses and facing potentially heavy fines from South Africa's competition authorities.

Overall profitability in the sector improved. However, this was lower than higher tender prices and increased activity would have suggested.

"This is indicative of the type of rising cost pressures civil contractors are faced with," Cees Bruggemans, chief economist of FNB, said on Monday.

There were also other constraints that could thwart the pace of the overall recovery, as municipalities spent only 41% of the total municipal capital expenditure budget in the first nine months of the year to March.

The report said an important feature of the recovery had been the consistent rise in construction activity, and that during the second quarter activity accelerated more notably than in previous quarters.

It said capital expenditure by provincial governments remained robust, rising 21,7% year on year in the year ended March.

It also said this momentum would likely continue dcue to a number of projects focused on healthcare, water and waste-water management.

Dr Llewellyn Lewis, principal consultant at the BMI Building Research Strategy Consulting Unit, said large construction and engineering companies would benefit most from the heightened activity, because most construction work required critical mass in terms of resources, skills and expertise.

The report said public enterprises had seen an increase in civil construction activity, especially with new water projects from the Trans-Caledon Tunnel Authority and civil work from the Airports Company South Africa coming online.

It said private-sector activity likely contributed less to the recovery, with mining production slowing and some miners holding back on expansion plans.

But, in general, as a result of the uptick in activity, firms have been able to further raise tender prices, providing additional relief to their balance sheets.

Construction employment levels increased modestly in the quarter, and this partly explained cost increases in the sector.

In addition to rising costs, though, survey respondents remained dissatisfied with the amount of new construction work available, and saw the lack of skilled labour as an increasing concern.

allixm@bdfm.co.za