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Stimulus, oil sands should energize engineering construction in 2010

0 462 Market Intelligence

The dichotomy between private and public sector investment in 2009 is clearly evident in the recent pattern of spending on engineering construction projects.

The dichotomy between private and public sector investment in 2009 is clearly evident in the recent pattern of spending on engineering construction projects.

In the second quarter, government investment in engineering construction was up by 18.1% year over year.

Businesses across the country have shelved a large percentage of their major engineering projects, largely due to a sharp decline in corporate profits caused in part by plunging commodity prices late in 2008 and a concomitant collapse of investor confidence.

This has caused business engineering investment spending to fall by 11.5% year over year in the second quarter, the largest year over year decline since the fourth quarter of 2004.

Since business spends approximately twice as much as government on engineering projects, total spending in this construction category was down by 4.6%.

Over the very near term and into the first quarter of 2010, we expect that total spending on engineering construction projects will probably stop contracting and begin to gradually expand as work gets underway on major infrastructure projects announced by federal and provincial governments earlier in the year.

Projects include the upgrading of border crossing facilities; rehabilitation of the Champlain Bridge, the Blue Water Bridge and the Peace Bridge; upgrading the Trans Canada Highway and improving passenger rail facilities between Toronto, Montreal and Ottawa.

Later in 2010, it appears likely that business spending on engineering projects will start to recover due to a firming of resource prices in general and of petroleum prices in particular.

In addition, the narrowing of the price spread between light crude oil and Canadian heavy oil should provide a significant boost to engineering construction associated with oil sands development.

Data source: Statistics Canada.
Chart: Reed Construction Data – CanaData.

by John Clinkard

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