Construction activity in all its forms − new housing, renovation work, non-residential building and engineering − depends on confidence and a positive investment climate. Uncertainty is the enemy of investment planning and the current deep pool of uncertainty has risen to overflow its restraints.

Assessing the economic outlook this year includes many issues that have been addressed on other occasions in the past. But there are also new concerns that are shaking the world and changing what the future will hold for all of us, individuals and companies alike.

At the moment, the number one question is: How deep into slowdown or recession is the U.S. financial crisis going to take the world? Will the latest rescue package by the Federal Reserve and the U.S. Treasury Department finally restore enough confidence that institutions will begin to lend to each other again?

What role should increased regulation play? Excessive speculation, first in the housing sector, then in commodities, caused havoc in normally functioning markets, while the economy was expanding. Now that contraction has set in, short selling has contributed to a spiral that may be out of control.

All of these questions have significant implications for interest rates, the value of the Canadian and U.S. dollars and construction spending. Problems in assessing the likely outcome for the economy are compounded by the fact that a Presidential election is underway south of the border and a federal election is in full swing here at home.

U.S. problems with respect to credit availability and financial sector failures, depressed housing starts, falling home prices and weak motor vehicle sales have spilled over into Canada to varying degrees. The recent drop in commodity prices is welcome for taking pressure off fuel prices and the general inflation rate, but is it long lasting or only a brief respite?

China, India, Hong Kong, Singapore, South Korea, Taiwan, Thailand − these and other emerging and industrializing nations are changing the global economic landscape. Canada’s wealth of resources make this nation well situated to share in the benefits, but there are accompanying issues with respect to damaging the environment and creating greater regional disparities.

Alberta’s booming energy sector is fighting at the front in the battle for the future. But Tar Sands work is coming under siege from falling oil prices, a new royalty regime, the likely introduction of carbon taxes (by whatever name) and U.S. government reluctance to purchase energy from less than clean production processes. New technologies, such as carbon capture and storage in the case of fossil fuels and wind farms, solar power and geothermal sources with respect to electricity, are being called on to save the day.

These aren’t just interesting times. They are bewildering, confusing, panic-inducing and perhaps opportunity-enhancing. They may also be epoch-changing.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

For CanaData’s latest put-in-place investment forecasts, see Market Insights story dated August 11, 2008.

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