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BLOG: 2016 Construction Outlook with CMD’s Mark Casaletto

0 335 Economic

by JOC Digital Media last update:Mar 10, 2016

CMD Canada's president Mark Casaletto delivered his construction outlook at a session at the Canadian Construction Association's 98th annual conference in New Orleans.
BLOG: 2016 Construction Outlook with CMD’s Mark Casaletto

Casaletto said last year there was general consensus that while oil prices were shaky, but 2016 there would be stability.

"Of course, that didn't happen," Casaletto said.

There is a lot going on in the world presently, he said, and what "messed with the mojo" of the world economy was the slowdown in China. It was a big deal in Canada, he said, as our economy is increasingly tied to the global economy.

The United States, Canada's biggest trading partner, is doing quite well with great fundamentals, but the current national election could be destabilizing and is certainly a source of worry and discussion.

The resource sector is closely tied to construction, and China is consuming much less than expected in terms of raw resources. Quite a few projects were expected in the last year which may not come to pass with the dip in the resource sector.

Global demographics certainly affect the economy; the developed world workforce is aging and is beginning to decline. The changing demographics influence what kind of buildings and infrastructure are being built.

Migration is also a growing factor, with a lot of the movement coming to North America. That will change labour force patterns and the background of the economy, and is also driving increasing urbanization.

Politics is important; the U.S. has the strongest economy in the world but "the Americans could potentially talk themselves into a recession" with a negative self-image.

The short and mid-term outlook for construction in Canada is mixed, but long-term, it is very bright, Casaletto said.

The industry is very flat this year, as the industry comes off a high and there is less investment.

"But there's infrastructure money coming, and it's coming fast," he said, and the bulk of the money will go to civil infrastructure.

There is much less money in Alberta, but in British Columbia where there's private money flowing, it's "business as usual."

Energy is a big factor, but "it's not all gloomy," Casaletto said.

Business investment was a big drag on growth, and the corporate sector continues to sit on profits rather than reinvest. But oil will slowly start rising again, possibly going to $60 or $70 by year's end.

Once that happens, Casaletto said, there may be a return to growth in the oil sector, but the big question is demand from China.

The "crown jewel" in Canada at the moment economically and fiscally is British Columbia, since it has a surplus. It is offsetting the energy declines of Alberta, Saskatchewan and Newfoundland. Alberta will have another recessionary year, and though oil will improve, it won't be enough for a full recovery for the province.

The provinces with growing GDP are those most closely tied to the U.S. economy, such as British Columbia, Manitoba, Ontario and Quebec. Those tied to the global economy aren't doing as well.

Resources aren't doing as well as they were, but even with that decline there's still 120 projects in the works, and once the market turns private money will start to flow and some of these projects may go forward.

Infrastructure investment in transportation, mostly bridges and roads, is starting to move, and there is also movement on the water side. Casaletto also included subways and Light Rail Transit as part of this infrastructure investment.

Residential construction is no longer the story for the industry, he said. It's non-residential which is growing, with office construction on the rise. Vacancy rates are under nine per cent across Canada.

"If you have tight supply, you have more incentive to build," Casaletto said.

Hotel and entertainment construction is also on the rise, thanks to pent-up demand as Americans return to prosperity and the lower dollar gives incentive to visit Canada.

Industrial construction isn't anywhere near where it was in previous years, but is on the rise as the dollar has fallen. But the problem with the industrial sector, Casaletto said, is that we are not investing as much as in previous years because "quite frankly it's speculation until the oil prices come back."

Building of educational institutions has shifted from universities to new K-12 schools and renovation of older facilities. This move is driven by demographics.

In summary, "in the short term there will be pain, and pockets of our industry will suffer," and the situation in the U.S. is the key. Globally, "China is the wild card." Near-term, the world will overcome its oil angst, and long term "we are very bullish on the construction industry," Casaletto concluded.

last update:Mar 10, 2016

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