“Wild and crazy times” spelled out at Construct Canada

Economists speaking at the CEO Power Breakfast at Construct Canada in Toronto last Thursday, December 4 suggested that there is a rocky road ahead for the next couple of years, but perhaps less for construction than the rest of the economy.

Warren Jestin, chief economist with Scotiabank, was first to address the crowd of several hundred people. He said that we can expect to see the economy in Canada sharply decline from the beginning of 2009, but that the worst is yet to come.

“If this were a marathon run,” Jestin said, “we’d be in the eighth mile,” adding, “The twentieth mile is where you hit the wall.”

Construction may level off, he said, but manufacturing will be in decline. House prices will continue going down until 2010. Government credit will be offered at “very, very low” interest rates, while private credit interest rates will go up. And we will continue to see volatile stock markets because much of the investment money is coming from countries with trade surpluses and emerging economies. They tend to be unpredictable in their investment practices.

Jestin said we are facing “an unprecedented economic situation in all our lifetimes.”

And despite “silly season” in Ottawa, Jestin said, referring to the showdown between Prime Minister Harper’s Conservatives and the proposed coalition of Liberals/NDP/Bloc Quebecois, Canada is better situated than other countries. He said our economy is relatively strong and that we already have an economic stimulus program that was implemented a year ago. “We should stay the course,” said Jestin.

Long term, he sees modest growth continuing in western Canada, while Ontario and Quebec will lose ground.

Alex Carrick, chief economist with CanaData and Reed Construction Data, who is an expert in construction forecasting, started by saying, “We are in wild and crazy times.”

Still, he was more optimistic about the long-term general economic outlook, saying that in two or three years the Canadian dollar and demand from developing economies will both be on the rise.

A bright spot for the construction industry today compared to previous economic downturns is that we are not suffering from overbuilding, said Carrick. The office vacancy rate across metropolitan Toronto and Calgary, for example, is low at 6%, he said.

Carrick gave a quick overview of construction industry activity this past year, noting that the hotel sector was not strong due to the drop in the number of U.S. tourists, and retail malls and warehousing construction was going down. Housing is down, as is industrial manufacturing construction: “This is not going to change, he said.

In the near future Carrick expects that governments will be spending on sectors like hospitals, and especially on civil engineering projects such as roads and sewers, not just because the infrastructure is aging, but also because rebuilding it, “is a health and safety issue.”

The renewable power industry might be one market with lots of construction activity, suggested Carrick, and could be “the answer to many of our problems.”

Toronto Mayor David Miller gave a few words at the end of the breakfast meeting. Evidently hard times have not yet hit the metropolis too badly. He noted that Toronto is currently enjoying the biggest building boom in 20 years, with over 100 highrises and 4 million square feet of commercial building development under construction.

“Our challenge is to continue the process,” said Miller. He proclaimed the week of December 1-5 as “Green Construction Week,” in Toronto, noting that many of the buildings are designed to LEED standards.