December 9, 2009

Construct Canada 2009

‘Bad news is pretty good,’ Scotiabank chief economist tells industry leaders

IAN HARVEY

correspondent

There’s good news about the economy ahead, says Scotiabank chief economist Warren Jestin. “The bad news is pretty good and the good news is that there’s going to be less bad news,” he told an audience at Reed Construction Data’s CEO Power Breakfast at Construct Canada Dec. 4.

Jestin said the economy turned the corner last March, but still isn’t out of the woods yet, calling the past few months, bumping along bottom.

In a detailed presentation, buttressed by a follow-up presentation by CanaData economist, Alex Carrick, the 1,000 or so breakfast attendees were given an exhaustive rundown on the road ahead.

The construction industry, Carrick said, is going to see some sustained activity, but probably only on the public infrastructure side, until office space inventories drop and retail picks up enough to drive new mall construction.

In the meantime, he said, the public sector will drive construction.

Carrick added that oil and gas engineering projects should start to open up once crude oil prices rise again.

Jestin said that the “most vicious economic setback we’ve seen in our lifetime” hasn’t affected Canada in quite the same way as other countries around the world.

For one, he said, the U.S. had a domestic recession, while Canada’s economic setback was triggered by a sudden drop in commodity prices.

Since January, he said, we’ve seen the auto industry start to struggle back to life after a virtual shutdown last January, which had a ripple effect on manufacturing.

Government stimulus spending for shovel-ready projects has also started to have the desired effect and while the economy isn’t booming, it’s not in a freefall either.

Credit will continue to be tight, he maintained, and inflation should stay at arm’s length, though interest will rise, probably as soon as next June or July.

“Interest rates will rise,” he said. “But not dramatically, considering there’s near zero now.”

The biggest impact on Canada and the U.S. will be what happens to the emerging economies of Brazil, Russia, India and China.

However, he warned that we are not about to return to the heady growth numbers of 2005-2007.

Manufacturing sectors in both Canada and the U.S. have lost jobs which aren’t coming back, he said.

“The auto sector won’t be what it was,” Jestin said, noting that in 1990, the auto sector accounted for 23 per cent of Ontario GDP, while today it accounts for just 11 per cent.

Ontario will be only just ahead of Newfoundland in getting back on track with Manitoba, P.E.I., New Brunswick, Nova Scotia and Quebec among the first to see recovery.

The loonie isn’t helping, he said, as the U.S. dollar continues to soften under the weight of its overwhelming debt.

Those who first flocked to the greenback as a safe harbour are now casting about elsewhere to park their money and gold looks like it’s the consensus refuge.

As a result he said, those hoping for a lower loonie to boost exports should just get over it.

“We’re looking at parity, and even above parity at times,” he said.

Zeroing in on macro-economics driving the construction industry, Carrick said that housing starts will lag and won’t be heading back to the 200,000 annual units of 2008 overnight.

Condo activity will also be slow, with a lot of unsold inventory sitting on developers’ books.

Hotels and motels won’t be much better with U.S. travel to Canada at an all-time low.

“You can split the market into private and public and private has dried up,” said Carrick.

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