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Canada well positioned to benefit from new world order

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Alex Carrick

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

Economists

Canada is fortunate in having a wealth of base and precious metals, fossil fuels, uranium, potash, forestry products and other raw materials that the world wants. The Canadian dollar is moving up and down according to what happens with commodity prices and demand from emerging nations. One result has been a value for the Canadian dollar that is pushing up against parity with the U.S. dollar. The two defining influences for Canada over the next decade will be global commodity prices and mega construction projects. The environment has also moved high on the agenda. Cleaner air is an important legacy issue for the next generation. This must also accommodate future income and job opportunities, including cutting-edge research and remediation efforts. Across the economy, success will depend on acquiring the skills to strike the right balance.

Canada’s economy began 2010 with a roar, registering a first quarter growth rate of 5.8%. In the second quarter, GDP moderated to 2.0% and further deceleration is expected in the latter half of this year, heading into 2011. The nation is being held back by a U.S. economy that continues to underperform, both in terms of labour markets and residential real estate. Canada’s foreign trade position has been in deficit for a year and a half, whereas normally there is a substantial surplus. Canadian housing activity recovered remarkably quickly after the recession, but is now showing signs of a stall. Unit home starts from 2000 to 2008 averaged 50% higher than during the decade of the 1990s. During the worst of the recession in 2009, they were pulled out of a steep decline by record low interest rates served up by the Bank of Canada (BOC). The low rates fired up the resale housing market first, which spilled over into new homes after about a six month lag. The era of super-low interest rates is coming to an end. The BOC has instituted three 25 basis point (100 basis points equals 1.00%) increases since June 1. Reduced home affordability has also resulted from HST introductions or increases in British Columbia, Ontario and Nova Scotia. Tighter mortgage lending rules and an excess inventory of unsold units in the multi-family/condominium market complete the list of negatives for new home construction through the end of next year. By 2012, more normal cyclical factors will see a return to stronger starts. In the non-residential building category, private sector funding all but disappeared during the late-2008 to mid-2009 recession. It is slowly coming back, but there is a timing issue. The construction industry has been sustained by public sector stimulus spending on infrastructure. The federal government’s financial commitment to projects is scheduled to expire March 31. The public sector money has been playing a forceful role in the institutional (schools and hospitals) and engineering (roads, bridges, sewers, water treatment) categories of construction. Expectations for new starts in these areas must be cut back for 2011 and 2012. New commitments will return in a couple of years, spurred on by demographic factors. In the meantime, the key question is how long before the private sector becomes fully engaged again? Retail projects are among the first to recover after a downturn, since family spending must continue regardless, to send the children off to school looking presentable if for no other reason. The office building market has not deteriorated to the degree expected by many, due to Canada’s financial sector holding up better than in any other G-7 nation during the credit crisis. Many of the largest office towers are owned by huge pension funds, with a more stable long-term outlook. In industrial and engineering construction, the emphasis will shift to resource projects. Canada is fortunate in having a wealth of base and precious metals, fossil fuels, uranium, potash, forestry products and other raw materials that the world wants. The Canadian dollar is moving up and down according to what happens with commodity prices and demand from emerging nations. One result has been a value for the Canadian dollar that is pushing up against parity with the U.S. dollar. The two defining influences for Canada over the next decade will be global commodity prices and mega construction projects. The environment has also moved high on the agenda. Cleaner air is an important legacy issue for the next generation. This must also accommodate future income and job opportunities, including cutting-edge research and remediation efforts. Across the economy, success will depend on acquiring the skills to strike the right balance. 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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