2012-10-26 14:44:37 - New Construction research report from Business Monitor International is now available from Fast Market Research
BMI View: Canada remains our developed market construction sector outperformer. Despite the potential threat from an overheating housing market, commodity price weakness and an underperforming commercial building segment, we believe the country's construction industry growth will outperform its developed market peers over the near term. Whilst residential construction continues to post impressive growth, infrastructure is the segment underlying our outlook, with a sustainable growth trajectory driven by rail and electricity projects creating the basis for growth.
Data for the first five months of the year is in line with our estimates for growth in 2012, and therefore we are maintaining our forecast for at 3.2% real growth year-on-year (y-o-y). Indeed, our subsector expectations of 3% for residential and non-residential building and
3.6% for infrastructure are also on track. There is heightened downside risk if the residential construction sector unravels more rapidly than anticipated, however this is not our core view.
Full Report Details at
- www.fastmr.com/prod/479388_canada_infrastructure_report_q4_2012. ..
Rail And Electricity Sustain Infrastructure Growth
Infrastructure remains a fundamental element of Canada's construction industry growth, with a project pipeline in excess of US$80bn. However, we are anticipating the sector to decline overall in 2012 to 3.6% y-o-y (compared to 6.4% in 2011), as below trend first five month data. However, this slowdown will not be felt across the board, with some sectors outperforming the overall trend.
One of the strongest sectors will be railways infrastructure, where a project pipeline worth US$21bn will drive annual average industry value real growth to 5.1% between 2012 and 2016. This is comprised 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.
The other booming sector is electricity, where we see US$35bn worth of projects under way or in planning. Huge generating stations are under construction, including the US$6.2bn Lower Churchill Hydropower Project, the US$2.6bn Lower Mattagami Hydropower Project, the 918MW Eastmain-1-A/ Sarcelle/Rupert Project, as well as extensive transmission line projects including the 1,380km US$3.3bn Bipole III transmission line and the US$1.6bn Eastern Alberta and US$1.4bn Western Alberta transmission lines. Wind power projects are also being developed across the country, although regulatory uncertainty is hitting the future project pipeline. These projects are guiding our forecast for 5.5% average real growth per year between 2012 and 2016 for the power plants and transmission grids sub-sector.
Conversely we see very few airport or port projects of any note, with the one exception being the US$1.3bn redevelopment of Calgary Airport. Insubstantial growth in both sub-sectors will drag down the overall infrastructure sector. However, with a project pipeline totalling more than US$80bn (equal to 72% of the industry value in 2011), growth in the infrastructure sector as a whole will remain robust, with annual average real growth of 3.8% forecast between 2012 and 2016.
Residential & Non-Residential Balance Out
One of the strongest sources of growth in the past 12 months has been residential construction. The first half of 2012 has seen a continuation of strong residential construction sector growth, with real industry net output growth of 6.7% y-o-y registered in the first five months of the year. Residential building permits are up 13% y-o-y in the first half of 2012, whilst house prices hit record highs for the third consecutive month in July. These figures are stoking concerns that the Canadian housing market is overheating. However, we anticipate that the industry will instead experience a gradual slowing rather than an abrupt decline, with government plans to slow mortgage growth likely to begin to take hold in the second half of the year. Indeed, signs of this taking place are emerging. The pace of growth in house prices slowed in July, with house prices up just 0.7% q-o-q, compared to 4.8% y-o-y. At the same time, housing starts appear to be past the peak.
Thus far in 2012, residential construction growth is being eroded by persistently weak output data for the non-residential sector, with is down -5.4% y-o-y in the first five months of the year. Despite a strong first quarter for non-residential permits, Q2 has seen the pace slow, with only a 3.2% increase seen in the first 6 months of the year (compared to 10% increase in the first four). In general, growth in this segment has been driven predominantly by institutional buildings, primarily in Ontario - specifically medical facilities and government buildings. This growth in permits should see the sub-sector positively contribute to construction industry value in 2013 and help to offset some of the anticipated slowdown in residential building. Overall, the residential and non-residential building industry is expected to post 3.1% and 3.8% growth respectively in 2012 and 2013.
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