October 22, 2007

Economics

Chief economist Helmut Pastrick predicts construction will drive economy

Richard Gilbert

staff writer

B.C. Economist predicts the provincial economy will continue to be driven by construction activity in the next five years, with some slowing of residential construction in 2008 and non-residential construction after 2010.

“In the forecast, the profile of construction activity reaches a peak in 2009 and 2010. The winding down of Olympic construction and related projects such as the Sea to Sky Highway and the Canada Line will have a significant impact on economic growth,” said Helmut Pastrick, Credit Union Central of B.C. chief economist.

A study produced by Pastrick entitled B.C. Economic Forecast 2007-2011 predicts that construction industry output will continue to grow at a faster pace than the provincial economy as a whole in 2007 and 2008.

The construction industry expanded by 10.1 per cent real GDP (adjusted for inflation) to reach approximately $ 8.7 billion in 2006.

Pastrick predicts the construction industry will grow by 4.9 per cent and 6.6 per cent in 2007 and 2008.

The provincial economy grew by 3.7 per cent real GDP to reach approximately $136 billion in 2006.

He expects the economy to grow by 3 per cent and 4 per cent in 2007 and 2008.

“Construction projects by their nature are large and chunky, so they contribute to the cyclical pattern in the industry. The construction industry is one of the more cyclical industries we have,” Pastrick said.

For this reason, he expects the reverse situation after 2008, with construction industry output growing at a slower rate than the provincial economy as a whole.

According to the study the construction industry will experience slower growth rates in real GDP of 0.9 per cent, 1.7 per cent and 2.4 per cent in 2009, 2010 and 2011 respectively.

The real GDP of the provincial economy is expected to grow by 3.8 per cent, 4.5 per cent and 3.6 per cent in 2009, 2010 and 2011.

The completion of the Winter Olympic venues and related infrastructure, along with less housing construction, accounts for the slower growth in construction industry GDP in the forecast period.

However, private non-residential construction is expected to remain strong. Capacity expansions at B.C. ports to capture more trans-pacific trade are underway and being planned.

Major energy pipeline expansions and a liquefied natural gas facility are also likely in the forecast period.

Business investment on machinery and equipment and non-residential construction will be a key driver of B.C.’s overall growth for the next five years.

Business investment will increase by 10.4 per cent in real terms (adjusted for inflation) in 2007.

In the five years ending 2011, business investment will increase by approximately 30 per cent in real terms.

Non-residential construction will increase by 9.6 per cent, 6 per cent and 3.3 per cent in 2007, 2008 and 2009 respectively, due to investment in commercial and industrial buildings.

Non-residential construction is expected to decrease by 1 per cent in 2010 and recover in 2011 with an increase of 3.8 per cent.

Engineering construction in the energy, mining, utilities and transportation mining sectors is expected to increase by 9.8 per cent, 8 per cent and 3.8 per cent in 2007, 2008 and 2009 respectively.

Engineering construction is expected to decease by 2.8 per cent in 2010 and recover in 2011 with a small increase of 1.5 per cent.

The residential forecast is better than expected in 2007, due to the continued growth in housing sales and starts activity.

Housing starts are on pace to reach 36,890 which exceeds last years output of 36,443 units by a small margin.

Housing starts are expected to fall in 2008 and 2009 to 35,697 and 33,958 respectively.

Housing starts will increase to 34,525 and 34,212 in 2010 and 2011. But this recovery does not bring housing starts back to 2005 levels.

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