This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Sep 02, 2010

Alex Carrick
For Canada, the longer-term outlook is largely about commodities

Canada and the United States have been in recovery since the third quarter of 2009. However, the pace of growth has slowed in both countries. U.S. real (i.e. inflation-adjusted) gross domestic product (GDP) growth in 2010’s second quarter dropped to 1.6% from 3.7% in the first quarter. The most recent peak for U.S. GDP growth occurred in the fourth quarter of 2009 at 5.0%.

Canada had its strongest recent quarter in the first three months of this year at 5.8%, although the gain in fourth-quarter 2009 was also solid at 4.9%. In this year’s second quarter, Canadian GDP growth fell back to 1.6%, a similar pattern of deceleration as occurred south of the border.

The U.S. is hobbled by weak jobs markets and a barely conscious housing sector. The latter is the aftermath of the sub-prime mortgage mess. Bank-owned homes as a result of mortgage foreclosures continue to flood the market with excess inventory. U.S. housing starts are approximately one-third what they should be, if the economy were functioning normally.

As for U.S. employment, firms are reluctant to rehire until better times have taken a firmer hold. In the meantime, they are content to spend their money on labor-saving equipment and computer systems. U.S. total employment is 7.0 million jobs below pre-recession levels. It will take several years to make up that shortfall. The U.S. economy will be performing below potential into 2012.

Canada survived the recession better than any other G7 nation. It was due to stronger government finances, a more conservative financial sector that experienced no major failures and a housing market that displayed surprising resilience, once the Bank of Canada took swift action to lower interest rates. The level of employment in Canada has returned to its pre-recession peak.

Over the past year and a half, the biggest drag on the Canadian economy has been foreign trade. The merchandise trade balance has fluctuated around zero whereas historically, this nation has run a surplus of from $50 to $100 billion, monthly annualized. The chief problem has been weak demand for Canadian goods from a U.S. economy that is operating far below capacity.

The world economic order is changing and this is to Canada’s benefit. China, India, Brazil and several nations in Southeast Asia are growing at rates near or above double-digit percentages. These countries are becoming less dependent on exporting cheap goods and more reliant on domestic demand from their rapidly expanding middle classes. The newly affluent are cultivating a taste for better quality consumer goods and nutritional fare. Canada, with its abundant natural resources in base materials and agricultural products, is ideally suited to serve those needs.

Canadian GDP growth will moderate next year (+2.3%) versus this year (+3.2%) due to a pull-back in housing starts and reduced government spending as infrastructure stimulus funding winds down. Private sector investment will only slowly return with gradual improvements in office vacancy rates and industrial plant usage. A global commodity price pick-up will help the trade balance in food products, fossil fuels and base metals. A slowly improving housing sector in the U.S., as well as publishing requirements, will provide a lift to Canada’s forestry sector.

Canadian GDP growth will speed up, but remain less than full-speed-ahead, in 2012 (+2.8%) and 2013 (+3.0%). The excess of money pumped out during government spending sprees around the world, in order to fend off the credit crisis, as well as deteriorating supply-to-demand equations for many commodities, will put upward pressure on prices in the years ahead. Commodity price increases will have particular importance for this nation, lifting the value of the Canadian dollar.

U.S. dependence on foreign oil, which causes a huge foreign trade imbalance, and Washington’s enormous fiscal deficit will cause some realignment in international currency holdings. This will necessitate an upward bias for U.S. interest rates, once the current period of exceptional monetary leniency is abandoned in next year’s first half. The Bank of Canada’s policy response will be a tricky balancing of inflation fighting while struggling to keep the value of the loony value from moving up too rapidly. Without a doubt, the future will bring interesting times.

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.


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Read Other Recent Alex Carrick Posts

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