CCA BLOG: International & Construction Economic Situation and Outlook

Todd Evans, a principal economist with EDC Economics, Mark Casaletto, the president of ConstructConnect Canada, and Buildforce Canada economist Bob Collins all gave their views on the future of the Canadian construction economy at the International & Construction Economic Situation and Outlook session held March 21 at the Canadian Construction Association's annual conference in Mexico.

Todd Evans explained economic trends in the United States, pointing to millennials as creating demand for consumer products and starting new families. However they have not pursued the housing market as much as their predecessors in Generation X, due to high student loans and expensive housing stock. But even a fraction of the 20 million plus people added to the labor market will make a dent.

In terms of Europe, the recent trade agreement between Canada and EU shows promise, though the recent Brexit and other populist movements are a concern, Evans said.

Growth in China may be slowing, Evans said, but since their base is much bigger, their Gross Domestic Product (GDP) produces the same amount of domestic demand at a quicker rate. This is positive for Canadian exports, he said.

"Seeing what's happened with China, we should keep an eye on India, as they are going down the same path," Evans said.

He cautioned that there is a concern with financial leverage in China, as the government is sitting on a trillion dollars.

In Canada, residential investment is leading the growth in Canadian construction activity. Nonresidential has recently declined and government work is somewhat flat. However a rising economy both in Canada and the U.S. will mean more activity, Evans said.

"It will be much slower in Calgary and Edmonton, but there will be activity there," he said.

Drivers of the Canadian dollar include oil and gas prices, non-energy commodity process, interest rate spreads, and U.S. dollar movements all mean the dollar will fluctuate around the 75 cent mark.

Casaletto said oil and commodity prices were as of last year dragging the Canadian economy.

"This year, we're forecasting a big jump," he said, and civil construction is where the growth is happening.

Total construction starts for 2017 are expected to grow by 13.4 per cent, and total civil engineering starts for 2017 are forecast for 21.5 percent, with total non-residential at 17 per cent.

"These are huge numbers, but I want to put an asterisk next to it," Casaletto said.

He pointed out there are huge and long-term commitments to infrastructure, but activity is not starting as fast as it could.

What this means, he said, is there's a lot of activity right now, whether infrastructure or non-residential, but it has to translate into put in place construction.

Mega projects have become an indicator of our industry, and between 2011-2014 average announcements for big multi-billion projects skyrocketed, but in 2015 they cratered. 2016 numbers are above the average due to big infrastructure commitments, but "it's a bit of a pig in a python" as progress is slow.

Infrastructure spending across Canada varies. Provincial projected finances through 2016 and 2017 indicate that B.C. is "really the story of the country and has been for some time."

A province's ability to commit to infrastructure depends on a balanced budget, and only B.C. and Nova Scotia are in prime positions to take advantage.

"The private sector will have a big part in infrastructure long term, because demographics will play a larger role," Casaletto said. Canada is becoming more urban, and immigration tends to go to the cities, putting a strain on current and aging infrastructure.

There are many announcements regarding infrastructure across the country, and commitments are being made, but the real story is how quickly money goes into projects and the ability to commit is the "real story."

The resource sector has tremendous investment, and they are still in total volume a large percentage of the dollars for projects. But in the last 24 months we haven't seen much in the way of new projects, Casaletto said.

However there does seem to be increasing predictability and slowly rising oil prices, and the private sector will probably increase investment in resources.

Residential used to make up the largest construction sector in Canada but going forward non-residential will be the driving force in construction. Housing isn't a down sector, but it isn't growing quickly either. Major cities are more dense and urban and that changes how we build residential.

Casaletto highlighted work on Toronto's downtown and said it's being addressed as the "Manhattanization" of Toronto's skyline with a trillion dollars of work on offices and other non-residential work.

Megaprojects are becoming an indicator of the overall health of the construction industry, and "it won't be long before we start talking about 'teraprojects' with trillion dollar investments such as Churchill Falls," Casaletto said.

Speculation and confidence will have a "tremendous impact" on the industry in the next 24 months. There is over a trillion dollars in private money waiting to be invested and overall confidence will determine of that money moves into construction.

Collins, who concentrates on labour, said the "bullseye is constantly moving." He said labour has doubled over the last 4 years but going forward "we're not so bullish."

Newfoundland non-residential work was very strong over the last several years, but with projects coming to an end there is a "significant cycle" in its decline phase in the province. New projects have been pushed out and delayed, which also dampens labour demand.

IN Nova Scotia, there's a modest rise in ICI construction across the outlook period (2017-2026) but there is shipbuilding demand on the horizon. For New Brusnwick, terminals and the Energy East project are what determines labour demand. Without that, New Brunswick will decline economically.

Prince Edward Island is difficult to measure, but is more moderate. Quebec has a bit of a downcycle, but new infrastructure projects like the Montreal LRT may push things forward to a limited exntent.

Ontario is "the beast," Collins said, with a lot of work in the GTA driving the industry, but "it takes a lot to move" in Ontario due to its size.

There are also big nuclear refurbishment projects in the works, and Ontario "is holding its own" as things go forward.

Manitoba is peaking due to hydro projects, and there is a bit of an easing off, Collins said. But it doesn't significantly decline, as these projects must be maintained.

Saskatchewan has ongoing and proposed resource development and pipeline projects sustaining activity, but requirements depend on proposed project movement.

In Alberta, there is no significant turnover, since there is very little new capital investment in the oil and gas sector. A lot of labour that will be or has been released is from out of province, but will soon affect numbers "in house," Collins said.

British Columbia has major LNG, pipelines, utilities, mining, transportation and other infrastructure, but it comes down to "when these things peak, which should be about 2019," Collins said.

Collins also warned that 20 per cent of the work force is expected to retire in the next decade, an estimated 248,000 construction workers.

Long term challenges are retirements, slower population growth meaning less youth available to enter the workforce and competition against other industries facing similar age demographics.

Collins stressed measuring productivity and maintaining apprenticeship programs, as well as sustaining labor mobility, both intra-province and between the provinces.

by JOC NEWS SERVICES Mar 21, 2017

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