Trade Uncertainty and Commodity Pricing Temper Optimism

Written by Gerard McCabe, Managing Director Canada at Turner & Townsend

Turner & Townsend recently released its 2020 Canadian Market Intelligence Report, examining economic conditions and outlooks across the country for the construction sector.

With solid provincial wage growth and the possibility of lower interest rates, Canada’s economic outlook for 2020 is relatively positive.  However, a negative or delayed resolution in the USA-China trade negotiations may hinder growth, given Canada’s significant exposure to international trade.

“We see a number of positive signs for the Canadian economy that will help to underpin growth,” said Gerard McCabe, Managing Director Canada for Turner & Townsend.  “There is low unemployment, inflation has remained controlled and wage growth is positive.  Prices on steel and aluminum have stabilized following the conclusion of trade negotiations and the removal of tariffs.”

 The report also found that non-residential construction investment is unlikely to see a marked increase over the year, but the moderate project pipeline should help some construction markets remain buoyant.  Infrastructure and transport projects will drive construction through 2020–21 while other sectors remain subdued.

The residential sector is forecast to make a modest recovery over 2020, though will be limited by household debt, which is expected to reach an all-time high.

Trends across Canada

In British Columbia, Turner & Townsend projects that significant investments in the energy sector and rising demand for real estate and transportation due to an increasing population continue to make the construction industry a major contributor to economic growth.

The residential sector is forecasted to have a modest recovery in 2020 driven by steady population growth and a robust job market enabling solid wage growth.

Alberta will continue to be challenged by the uncertainty caused by oil production curtailments and a subdued labour market.  Despite that, new projects have helped expedite recovery to consumer spending and residential construction, which was the result of the sluggish labour market and high unemployment rate.

Significant transport projects commencing this year include the $4 billion Green Line LRT in Calgary and various sections of the $2.6 billion Edmonton LRT.  These projects are likely to create a shortage of skilled civil and engineering trades in the market.

In Saskatchewan, the economy is driven by commodity output and has the most at stake amid rising trade tensions between the USA and China.  Uncertainty surrounding commodity prices has stalled new investment.  Following the completion of several major mining projects, workers have left the province to find other opportunities.  Major projects in health, highways, and utilities are winding down, leaving significant spare capacity in the labour market.  Saskatchewan’s housing market showed weak growth through 2019 and is not likely to pick back up through 2020.

Similarly, Manitoba shows little sign of a marked improvement as a result of the region’s heavy reliance on exports.  A number of large projects are coming to completion in 2020 with few new major projects in the pipeline.

With a predicted 1.5 per cent growth for the second half of this year, the outlook for the Toronto market is cautiously optimistic.  However, wage increase pressures, continued lack of availability of skilled resources, and low unemployment rates are contributing to a softening in the economy.

Northern Ontario’s economy is expected to remain flat in 2020.  Economic growth in the next decade is expected to be driven by the mining sector.  Increasing global economic pressures on natural resources are expected to be the cause of lukewarm growth, due to the region’s dependence on mining exports.  A critical issue hindering regional economic growth is a shortage of skilled workers as qualified journeypersons continue to exit the workforce due to age.

In the National Capital region, the construction market is forecast to have healthy growth in 2020, largely driven by the continued development of the region’s LRT and the continuation of federal projects.  A healthy employment market and favourable labour conditions are driving growth in the region’s population and increasing levels of immigration.

Despite external headwinds and domestic downturns, Quebec’s economy has strengthened over 2019 with growth forecasted to continue through 2020.  Low unemployment and high job vacancy have resulted in strong wage growth and a healthy job market in Quebec.

Increased infrastructure spending along with a steady demand for new housing in Quebec will also support the region’s growth.  For the third year in a row, the Montreal economy will post annual growth above three per cent as it continues to benefit from strong housing, hi-tech, manufacturing, and industrial markets.  However, rising construction and labour costs may cause concern for 2020 and beyond.

The Atlantic region can outperform the national average subject to the steady flow of immigration and favourable conditions in the oil and natural gas sector. Newfoundland’s economic outlook remains tied to resource investment projects and global commodity prices.

Economic activity in Prince Edward Island has been supported by continued population growth, including higher immigration targets and increased retention of immigrants.

Nova Scotia has steady housing starts but is also supported by strong non-residential projects, such as the redevelopment of the QEII Health Sciences Centre and large-scale shipbuilding.

In New Brunswick, industries are focused on exports which have seen decreases in 2019.  However, increasing employment and housing sales have contributed to the province’s moderate growth.  In addition, the upcoming development of an offshore oil site at Bay du Nord is expected to provide 11,000 person-years of in-province employment.

Mining activity is expected to fuel growth in the Canadian North over the next decade.  GDP is expected to grow above four per cent in 2020.  Nunavut’s mining sector is expected to support the regional economy for the next couple of years.  New mining activities will also contribute to the growth of the region.

“The trends across Canada’s construction sector are clear: tight labour markets, and specifically the lack of skilled trades, will continue to slow developments and economic growth, said McCabe.  “Similarly, external factors like trade disputes will impact demand, which in turn will potentially impact commodity pricing.” 

To access the full report, click here

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About Turner & Townsend

Turner & Townsend is an independent professional services company specializing in program management, project management, cost, and commercial management and consulting across the real estate, infrastructure, and natural resources sectors.  With 110 offices in 45 countries, we draw on our extensive global and industry experience to manage risk while maximizing value and performance for our clients.