Canada Infrastructure Report Q2 2014 - New Market Report

From: Fast Market Research, Inc.
Published: Fri May 02 2014

We have marginally downgraded our forecast for 2014 construction industry growth to 2.0%, based on continued weakness expected in residential and non-residential building, as well as the potential for a relative slowdown in infrastructure activity as projects progress through the construction phase. Over the medium term however, we see considerable upside to our construction forecast based on the CAD53bn New Building Canada Plan.

With 2013 construction industry value growth coming in largely in line with expectations (1.4% versus BMI estimate of 1.6%), we have only marginally downgraded our 2014 forecast, to 2.0% from 2.2% previously. We do not see any reversal in the weakness reported in the residential and non-residential building segment, although we do see scope for a temporary pick-up in housing at the start of 2014, based on a pick-up in residential building permits in Q413. However, we believe the increased cost of capital and the continued deceleration in growth in the industry overall, will mean a revival in growth rates to previous highs are not likely for the segment.

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Infrastructure is expected to remain the strongest force behind growth, with a large number of projects under construction. However, a number of these are in the final stages, raising some concerns over the sustainability of the project backlog. The New Building Canada Plan does present substantial upside to this slowing growth trend over the medium term for the sub-sector, as well as continued demand for new infrastructure from the natural resource segment. Unlocking this potential through improved regulations, timely distribution of funding and well-planned projects will be key to factoring growth potential into our ten-year forecast to 2023.

Infrastructure Foundation For Growth

Infrastructure remains a fundamental element of Canada's construction industry growth, with a project pipeline in excess of US$160bn. Infrastructure growth should remain stable and solid, at around 3.9% over the medium term. There remains upside potential from major pipeline projects.

One of the strongest sub-sectors over our 10-year forecast period to 2018 will be railways, where a project pipeline worth US$36bn will drive annual average industry value real growth of 4.6% between 2014 and 2018. This growth will be driven primarily by urban rail projects, including the CAD8.2bn Eglinton Crosstown Light Rail Transit project, the US$2.6bn Toronto Subway Spadina line expansion, the US$2.1bn Ottawa Light Rail project and the US$1.8bn Edmonton Light Rail project.

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