September 25, 2008

Construction forecasts conference offers answers to tough questions about Canada’s economy

Mark Casaletto

Vice-president and General Manager

Reed Construction Data – Canada

The following is based on remarks made by Mark Casaletto, VP and General Manager of Reed Construction Data – Canada, at the opening of the 23rd Annual Construction Industry Forecasts Conference, which is underway today, September 25, 2008.

Construction activity in all its forms — new housing, renovation work, non-residential building and engineering — depends upon confidence and a positive investment climate.

Uncertainty is the enemy of investment planning. That being said, Canada is facing a deep pool of uncertainty, one that is threatening to overflow its banks.

Any assessment of this year’s economic outlook requires re-examining issues addressed many times at the conference over the past 23 years. However, new concerns are shaking the world and changing what the future holds for all of us, individuals and companies alike, so new questions need to be asked.

At the moment, the number one question is: How deep into slowdown or recession is the U.S. financial crisis going to take the world? Will the latest rescue package by the Federal Reserve and the U.S. Treasury Department finally restore enough confidence that institutions will begin to lend to each other again?

What role should increased regulation play? Excessive speculation, first in the housing sector, then in commodities, caused havoc in normally functioning markets, while the economy was expanding. Now that contraction has set in, short selling has contributed to a spiral that may be out of control.

All of these questions have significant implications for interest rates, for the value of the Canadian and U.S. dollars and for construction spending.

The U.S. presidential election and the federal election here at home only compound the difficulties of assessing the likely outcome for the economy.

The U.S. problems around credit availability and financial sector failures, depressed housing starts, falling home prices and weak motor vehicle sales have spilled over into Canada and the effects are mixed.

For example, the recent drop in commodity prices is welcome because it takes the pressure off fuel prices and the general inflation rate, but will it last a while or is it only a brief respite?

China, India, Hong Kong, Singapore, South Korea, Taiwan, Thailand — these and other emerging and industrializing nations are changing the global economic landscape. Canada’s wealth of resources make this nation well situated to share in the benefits, but the potential damage to the environment and greater disparities between regions must be considered.

Alberta’s booming energy sector is fighting at the front in the battle for the future. But oilsands work is coming under siege from falling oil prices, a new royalty regime, the threat of carbon taxes and the U.S. government’s reluctance to purchase energy from less-than-clean production processes.

New technologies, such as carbon capture and storage, wind farms, solar power and geothermal sources are now being called upon to save the day.

The experts at CanaData’s 23rd Annual Construction Industry Forecasts Conference have a lot to talk about today, so let’s get started. It’s going to be a very interesting day.

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