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Summer Review of Engineering Construction Outlook in Canada

0 1521 Market Intelligence

Alex Carrick

Positions:
Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

CanaData’s engineering construction forecast now stands at $86.8 billion for 2009. This is -9.4% when compared with 2008’s $95.9 billion. The main reason for the decline is a cutback in spending by the energy sector in Alberta. Projects were put on hold as oil prices fell and producers got frustrated with input shortages and high costs. With oil prices on the mend, projects are being reinstated and new ones initiated, including on the East Coast. This sector is likely to be an add-on to government infrastructure work in 2010, returning overall engineering construction dollars to about $94.7 billion (+9.0%), then rising to $103.7 billion (+9.5%) in 2011.

For Canada, there is a major side effect of higher commodity prices, especially with respect to oil. Oil prices peaked in July of last year at $145 USD (U.S. dollars per barrel). Then they dropped to $35 in February of this year. They are back up between $60 and $70. The Canadian dollar has become a petro-currency. In the last several years, the loonie has moved in the same direction as the price of oil. Further oil price hikes will put more upward pressure on the Canadian dollar. Where is this leading over the long-term?

U.S. economic recovery is likely to see some revival in the value of the greenback. But the greenback is struggling under the burden of a grinding millstone, enormous U.S. government debt. Washington’s deficit in only the first nine months of this year exceeded $1 trillion. That is double the level for all of last year. There is a danger that the loonie may shoot past parity with the greenback. In that event, it will become increasingly difficult for Canadian producers to sell almost anything south of the border.

The Put-in-place Investment Dollars

CanaData’s engineering construction forecast now stands at $86.8 billion for 2009. This is -9.4% when compared with 2008’s $95.9 billion. The main reason for the decline is a cutback in spending by the energy sector in Alberta. Projects were put on hold as oil prices fell and producers got frustrated with input shortages and high costs. With oil prices on the mend, projects are being reinstated and new ones initiated, including on the East Coast. This sector is likely to be an add-on to government infrastructure work in 2010, returning overall engineering construction dollars to about $94.7 billion (+9.0%), then rising to $103.7 billion (+9.5%) in 2011. These figures are all in “current” dollars as opposed to “constant” dollars (i.e., they have not been adjusted for price changes.)

The total value of construction in Canada is forecast to be $210.6 billion in 2009 (-8.6% versus 2008) and $222.9 billion (+5.8% year over year) in 2011. It was $230.4 billion in 2008. It won’t exceed that level again until it reaches $244.4 billion (+9.6%) in 2011.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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