October 8, 2008

CanaData Annual Construction Industry Forecasts Conference

Labour markets, commodity prices will continue to challenge Canadian construction industry, economist says

VINCE VERSACE

staff writer

Tight labour markets and rising commodity prices will continue to be challenges for Canadian construction for the foreseeable future, says Scotiabank’s chief economist.

“Labour markets remain tight, labour markets remain under pressure,” said Warren Jestin, senior vice-president and chief economist at Scotiabank, at the 23rd annual CanaData conference in Toronto last week.

The world is “getting older and greener” and this aging of the skilled labour force is a worldwide trend not just unique to Canada.

In particular for the United States, as it deals with its current financial market crisis, an aging workforce only adds more financial pressure through retirements.

Construction should note that the “green economy” could see a $30 to $50 trillion investment worldwide between now and 2030 strictly to deal with environmental remediation.

Consumption in emerging economies such as China and India is driving the car market and they are in “consumption mode,” said Jestin.

China, India and Russia are leading both motor vehicle sales growth and production, creating more environmental challenges.

“The reality is, greenhouse gases will be higher in 2030 than they are now,” said Jestin.

Construction can expect environmental regulations to grow “tighter and tighter” as governments and global markets attempt to resolve environmental issues, he said. “The basic issue with such rapid growth (is) you have markets that have never had such growth,” said Jestin. “You will now have a greater demand for energy products.”

This demand for energy delivers one basic message for companies and individuals: “Get used to high commodity prices,” Jestin said. Emerging markets will keep commodity demands high.

Recent rumblings that Canadian financial and housing markets could meet the same fate they have in the United States is not something Jestin agreed with. He said that in terms of equity, homeowners in Canada are in much better shape.

“Do I think we are on the precipice? Not at all,” said Jestin. “There are stronger household balance sheets (in Canada).”

When it comes to the recent United States financial downturn, it will be remembered for duration not intensity, Jestin said.

Where some growth has occurred in the United States is in non-residential construction sector. Canada has slowed a bit in this area because its initial push in the energy sector has begun to slow, added Jestin.

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