Construction stocks fell on Friday as the global construction market struggles to absorb a flood of construction work from the start of the construction season.
In its fourth quarter, construction sector output slumped by 2.5% in September, while output for construction projects that will start this year was down 2.9%.
The drop is in sharp contrast to a year earlier, when the sector grew by 7.7%.
In August, a construction ministry report showed that the sector’s output fell by a staggering 10.6% in August.
The ministry attributed the slowdown to the construction of 1.7 million homes and apartments.
The Israeli construction industry is still struggling to cope with the unprecedented flood of work.
“The construction industry has been hit by a very severe crisis and this crisis has not been fully overcome by the end of September,” said Yossi Benayoun, chief economist at Tel Aviv-based consultancy Hectic Investment Advisors.
“I don’t think it will take long before the economy gets back to normal,” he said.
The construction sector has already been hit hard by the shutdown of most of Israel’s main tunnels and the construction and excavation of several new tunnels under the Gaza Strip, which the Gaza-based Palestinian Authority has been building for decades.
According to Benayoune, the slowdown in construction was driven by two factors: a shortage of new building materials and a slump in the prices of these materials.
In the first two months of the year, construction equipment and materials for construction fell by 1.9% on an annual basis.
In contrast, the sector recorded an annual growth rate of 3.3%.
“The collapse in construction activity and construction prices are not only the result of the shortage of materials, but also of the decline in the price of the materials,” Benayoul said.
“So we will not see an improvement in the next six months.”
Benayoun believes that there will be further declines in the industry’s output in the coming months, as the demand for materials will drop due to the end to the winter weather.
In the short term, Benayon said, the government has already begun to make adjustments to prepare for the coming construction season, which will be shorter than usual due to a short window of time between the beginning of the season and the beginning the new year.
“We will start the season with a large number of new buildings and will also start to reduce the number of construction jobs,” he added.