Preliminary Investment Trends Report

Transcription

1 Preliminary Investment Trends Report ALBERTA: Proposed and ongoing oil sands, pipeline, storage terminals, electric power facilities and transmission projects continue to push Alberta s construction activity well above historical levels. In addition, maintenance work and sustaining capital projects add to construction activity across the outlook period. Residential construction rises over the medium term driven by in-migration to the province, but then cycles down as population growth and migration slow over the long run. INTRODUCTION This report highlights expected investment trends in Alberta from 215 to 224. It does so with a view to providing initial insights on how new major projects, sustaining capital and ongoing investment trends may guide construction labour markets, serving as a precursor to the more detailed Construction and Maintenance Looking Forward report to be released in early 215. The information in this investment outlook has been validated through consultations with industry, including owners, contractors and labour groups, and government. Changes in anticipated project schedules, however, can alter these expected trends. BuildForce Canada regularly monitors economic conditions and the scheduling of major construction projects in order to incorporate relevant changes into its forecasting system. September 214

2 ECONOMIC ENVIRONMENT The future economic performance of the provinces is determined by the behaviour of a number of key forces driving the economy. These drivers include the performance of commodity prices and the economies of Canada s major trading partners. While commodity prices remain high in historical terms, many are assumed to weaken in the short term, consistent with the world economy s overall weak recovery. Agricultural prices weakened in 214, but remain relatively stable in the long term. Prices for metals and minerals were also weaker in 214 as a result of weak global growth prospects. While prices are assumed to increase over the long term, the increases will be relatively small compared to the gains of the last decade. Both oil and gas prices increase on average over the outlook period. Oil prices are forecast to decline until 216 and increase thereafter. The price of oil is expected to exceed its previous peak of about US$1 per barrel by 219. The price of natural gas fails to return to its previous price peak. The relatively weak performance of natural gas reflects the increased supply of gas that is expected to be obtained from shale gas deposits across North America. Canada s key trading partners show a strengthening in the medium term as their economies continue their recovery from the recent recession. U.S. growth strengthens to 2.8 percent in 214 and averages 2.9 percent per year over the medium term. The Eurozone is expected to grow by 1.1 percent in 214 and then average 1.5 percent over the medium term. Expected growth in Japan will be slightly lower, averaging 1.3 percent annually. China s economic growth remains relatively strong, but its rate is lower than that observed over the past 1 years. The Canadian economy is forecast to grow by 2.1 percent in 214, up slightly from 2. percent in 213. A still recovering global economy in combination with an almost 1 percent depreciation of the Canada-U.S. exchange rate will cause export growth to strengthen and put downward pressure on import growth. GDP 1 growth averages 2.4 percent per year over the medium term, but then slows to 1.7 percent over the long term as the impact of the exchange rate depreciation diminishes and natural resource-related major project investment slows. In Alberta, economic growth is expected to average 3. percent over the medium term to 218 driven largely by increasing oil production, but then slow to average 1.8 percent over the long term as overall export growth slows. CONSTRUCTION INVESTMENT TRENDS Non-residential construction investment remains strong across the outlook period driven by major industrial and engineering projects. New housing construction increases from 215 to 217, but then cycles down over the long run as in-migration to the province slows. Renovation work rises steadily across the outlook period. Table 1 provides a summary of investment across these sectors. 1 Gross domestic product Preliminary Investment Trends Report Alberta:

3 Table 1: Construction investment ($ millions*) 214f** 215f 216f 217f 218f 219f Non-residential investment (excluding maintenance) 38,473 4,97 39,33 39,168 38,97 38,951 % change 1.2% 6.5% -4.1% -.3% -.5%.% Building 8,484 8,976 9,128 9,332 9,721 9,899 % change 12.7% 5.8% 1.7% 2.2% 4.2% 1.8% Industrial 2,4 2,524 2,452 2,56 2,526 2,499 % change 8.% 5.2% -2.9% 2.2%.8% -1.1% Commercial 3,189 3,488 3,647 3,767 3,967 4,41 % change 19.2% 9.4% 4.6% 3.3% 5.3% 1.9% Institutional 2,895 2,964 3,3 3,59 3,229 3,359 % change 1.% 2.4% 2.2% 1.% 5.6% 4.% Engineering 29,989 31,994 3,175 29,836 29,249 29,52 % change 9.5% 6.7% -5.7% -1.1% -2.% -.7% Highways/bridges 2,665 2,388 2,325 2,77 2,24 2,326 % change 6.6% -1.4% -2.6% -1.7% 7.8% 3.8% Oil Sands 14,275 14,959 15,314 15,96 16,329 16,873 % change 2.5% 4.8% 2.4% 3.9% 2.7% 3.3% Other engineering*** 13,49 14,647 12,536 11,852 1,681 9,854 % change 19.1% 12.2% -14.4% -5.5% -9.9% -7.7% Maintenance 5,312 5,613 5,956 6,249 6,52 6,766 % change 4.3% 5.7% 6.1% 4.9% 4.3% 3.8% Residential investment 17,423 18,155 19,156 19,333 18,88 18,13 % change 7.8% 4.2% 5.5%.9% -2.7% -3.6% New housing 1,965 11,638 12,65 12,574 11,866 11,57 % change 9.7% 6.1% 8.3% -.2% -5.6% -6.8% Renovations 6,458 6,517 6,551 6,759 6,942 7,73 % change 4.8%.9%.5% 3.2% 2.7% 1.9% * $ millions indicates that the money values are in year dollars (base year), that is, adjusted by inflation. This is used to calculate the real physical change of the values, factoring out growth due to increases in prices. Totals may not add up due to rounding. ** f refers to forecasted investment. *** Other engineering includes the construction of water, wastewater, oil and gas, pipelines, mining, power and communications-related facilities. Preliminary Investment Trends Report Alberta:

4 Non-residential Non-residential construction investment fluctuates mildly across the outlook period, but overall activity remains near historically high levels (see Figure 1). Investment is expected to peak in 215 and then decline marginally as major electric power, transmission and pipeline projects wind down. Figure 1: Non-residential construction investment ($ millions) 45, 4, 35, 3, 25, 2, 15, 1, 5, Engineering ICI building* * ICI building refers to industrial, commercial and institutional building. Engineering construction investment dominates non-residential activity (see Figure 2) driven by activity in the oil sands, as well as major projects in pipelines and utilities. Following a brief decline in 213, oil sands investment rises steadily across the outlook period. Investment is driven by a combination of new, sustaining and maintenance work. Other engineering construction grows significantly over the near term driven by ongoing and proposed pipeline, electric power and transmission projects. Activity is expected to peak in 215 and then decline as known major projects wind down. Construction investment in roads, highways and bridges cycles down briefly to 217 and then resumes growth across the remainder of the period, with overall activity remaining well above historical levels. Preliminary Investment Trends Report Alberta:

5 Figure 2: Non-residential engineering construction investment ($ millions) 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Roads/highways/bridges Other engineering Oil Sands ICI building construction investment (see Figure 3) increases across the outlook period. Investment in industrial building construction rises to a new high in 215 and then remains relatively unchanged at this level across the remainder of the period. Commercial construction rises steadily across the period driven by overall healthy economic conditions. Institutional spending growth is moderate over the near term due to government spending restraint, but rises over the long term to meet the demands of a larger population. Figure 3: Non-residential building construction investment ($ millions) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, Industrial building Commercial building Institutional building Preliminary Investment Trends Report Alberta:

6 Residential Residential investment rises over the near term to 217, but then cycles down as in-migration slows. Slower population growth reduces household formation 2 and housing starts (see Figure 4). New housing investment follows this trend, increasing to 217, and then declining across the rest of the outlook period. Renovation investment increases steadily across the period (see Figure 5). Figure 4: Housing starts and household formation 6, 5, 4, 3, 2, 1, Household formation Housing starts 2 Household formation refers to the change in the number of households (persons living under one roof or occupying a separate housing unit) from one year to the next. It is the means by which population growth is transformed into demand for new housing. Preliminary Investment Trends Report Alberta:

7 Figure 5: New housing and renovations investment ($ millions) 14, 12, 1, 8, 6, 4, 2, New housing Renovations SUMMARY Broad labour market implications may be drawn from expected investment trends. Early in the outlook period, the non-residential sector is expected to experience a steady demand for trades involved in oil sands, pipeline, utility and manufacturing construction. In addition, increased sustaining capital and maintenance work over the long run adds to the demand for skilled workers. In the residential sector, labour demand will be more moderate. New housing and renovation investment over the short term to 217 will create steady employment opportunities. Over the long run, new housing employment declines, but the decline may be partially offset by increased opportunities as the demand in renovation work continues to grow. These market conditions are derived from an investment scenario that is based on a preliminary set of assumptions about current economic conditions and proposed new projects, sustaining capital and ongoing maintenance investment. These drivers may be prone to market uncertainties, however. BuildForce Canada continually monitors the economic environment and proposed major construction projects. Any updates will be incorporated into the upcoming Construction and Maintenance Looking Forward report of labour market conditions, to be released in early 215. Timely construction forecast data is available online at Create customized reports on a broad range of selected categories within sector, trade or province covering up to 1 years. For more information, contact: BuildForce Canada Phone: info@buildforce.ca September Funded by the Government of Canada Preliminary Investment Trends Report Alberta: