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The 2019 Canadian Construction Fourth Quarter Outlook | FMI

The 2019 Canadian Construction Fourth Quarter Outlook

 

FMI Managing Director Jay Bowman Discusses the Construction Forecast

Canada Engineering and Construction Outlook

 

Total engineering and construction spending in Canada is anticipated to be just shy of $295 billion for 2019. This comes to a modest 2 percent increase over 2018 or about $6 billion in additional investment. Looking ahead to 2020, FMI forecasts total spending to increase 5 percent to top $307 billion.

Overall, we expect total construction spending across Canada to continue a long-term inflationary growth pattern. Although this does not provide the same opportunities of the double-digit expansion of the early and mid-2000s, considering several of the potential economic disruptors—from provincial policy changes to volatile oil prices to trade uncertainty—a 3 percent Compound Annual Growth Rate (CAGR) through the forecast period seems welcome.


Province by Province

At the provincial level, over the next five years, Alberta will see the greatest gains in engineering and construction spending, maintaining a 4 percent CAGR. Coming out of a provincial recession led by low oil prices, the economy is still heavily dependent on oil and gas investments continuing. However, the combination of a rebounded and stabilized energy sector, alongside various incentives for business investment, should boost economic recovery and expansion.

By comparison, Ontario’s economy is seeing slowing after seeing five years of strong growth. Our forecast points to a modest 1 percent increase in engineering and construction spending in 2019; yet the long-term outlook will track closer to 3 percent CAGR through 2023, driven by transportation and manufacturing investments. The province’s economy is anticipated to remain stable due to healthy labor market conditions and strong population growth.

Similarly, spending in British Columbia is forecast to stall, following several years of near double-digit growth. A development at LNG Canada’s export terminal in Kitimat, in addition to the related buildings and infrastructure demand that it will require, will be significant. However, slowdown across most other residential and nonresidential building segments will weigh on overall engineering and construction spend, resulting in a 2 percent CAGR over the next five years.

Quebec has seen strong employment and population growth over the last two years, resulting in significant engineering and construction activity. Spending increased 11 percent in 2017 and 8 percent in 2018. In 2019 and 2020, we see these rates slowing (1 percent and 0 percent, respectively) and ultimately shifting to a more moderate long-term pace with a 2 percent CAGR through 2023. Transportation and water supply investments, coupled with a healthy residential market, support anticipated long-term balance.

Despite the challenges presented by oil spills in Newfoundland and Labrador and declining forestry and manufacturing demand in New Brunswick, engineering and construction spending across the Atlantic region is projected to outpace other provinces in 2020. Significant population growth in Nova Scotia and Prince Edward Island fuel demand for additional buildings and infrastructure. Halifax’s residential market continues to be one of the most affordable in Canada, alongside stable demand across health care and commercial space. Last, the provincial governments’ investment in power and water supply infrastructure round out a 5 percent increase in total construction spend in 2020.


The Power Segment Remains Dominant

From a segment perspective, power and water supply will lead engineering and construction spending growth in 2020, at 9 percent and 19 percent, respectively. Right now, many of the largest upcoming projects in Canada are power-related. This includes more than a dozen megaprojects valued greater than $1 billion.

The water supply and wastewater disposal segments combined represent a much smaller share of overall spending, but are forecast to expand at a rate of almost 6 percent CAGR over the next five years, with several large projects planned across the nation.

Many of the nonresidential building segments, including commercial, office and lodging, look to hold steady over the next five years, with CAGRs ranging from 3 percent to 5 percent. And while forecast construction spending in the multifamily market begins to slow, single-family construction should stay at or slightly above the long-term rate of inflation.

Overall, Canada’s construction industry has many bright spots against a backdrop of global uncertainty, stemming from trade negotiations, the U.S. presidential election cycle and changing provincial and national governmental policies. In 2020, as these uncertainties unravel both at home and abroad, we should start to see a clearer indication of things to come. For now, it’s time to take advantage of the many opportunities that exist, assess future options and build resiliency in your organization.

 

Total Canadian Construction Spending Put in Place 2018 and Forecast Growth (2018-2023 CAGR) by Construction Segment


Source: Statistics Canada and FMI Forecast