Construction report indicates solid growth prospects and high business confidence
Canada’s growing economy faces a backdrop of high inflation, rising interest rates and global uncertainty, but the business landscape remains strong.
Canada’s economy is expected to grow at a good pace, although at a slightly slower rate than Q4 2021, even with a challenging macroeconomic environment, says professional services firm Turner & Townsend in its Spring 2022 Canadian Construction Market Intelligence Report.
The report provides market analysis, sector insights, and a supply chain capacity chart for each province. Additionally, it discusses the need for all Canadians to come together, share innovative ideas and business models to push all industries, especially the larger emitting industries, towards a net-zero future.
Over the past few months, inflation has taken hold across the Canadian economy, increasing to reach an average rate of 6.7 per cent, the highest it has been in decades. In March, the Bank of Canada changed its tone on inflation, indicating it is not transitory as previously thought.
The governor also mentioned a need to be more aggressive to get inflation under control. As a result, interest rates increased by 50 basis points in March, or 75 basis points since the start of the year, to sit at one per cent. Further increases are anticipated.
Locally, the construction industry is feeling the impacts of inflation. Products are going up in price and supply chain bottlenecks are impacting product availability.
While higher costs are challenging businesses, Covid-19 lockdowns in China are starting to impact output, and the conflict in Ukraine is limiting the availability of some goods. In addition, businesses around the country are experiencing labour shortages as the national unemployment rate sits at just 5.2 per cent, prompting the government to ease its temporary foreign work visa quotas (TFV) to assist businesses in finding labour.
While businesses face these headwinds, their confidence is up significantly. The Ivey Purchasing Manager’s Index, which represents business confidence, sits at 66.3 in April, up from 60.6 in February but down slightly from March (74.2). This signals that uncertainties around the pandemic are now easing and companies are looking forward to the opportunity to fulfil pent up demand, although they are cautiously factoring in potential for softening of demand, given global uncertainty, inflation and rising interest rates.
Non-residential construction shows strength
Housing starts and building permits provide insight into the future demand for housing and commercial buildings. This edition’s analysis found that housing starts fell in British Columbia, Alberta, Quebec and Ontario. The drops were quite significant, falling between three and 20 per cent as housing across the country adjusts to a higher interest rate environment.
In comparison, the number of building permits increased across the board, indicating that there is still strong demand for buildings across Canada. Both Quebec and British Columbia saw a strong jump in non-residential sector building permits due to several permits issued for large hospital developments.