October 1, 2012
Construction expected to lead growth over next five years
A B.C. economist predicts the construction industry will expand faster than all domestic industries in the next five years, but the economy will improve slowly before shifting to stronger growth rates.
“B.C.’s economic recovery from the recession will enter its fourth year in the second half of 2012, assuming no U.S. or global economic recession occurs during the remainder of the forecast,” said Helmut Pastrick, Central 1’s chief economist.
“An outright global economic recession would pull B.C. into recession, and while such an outcome cannot be dismissed entirely, it is a low probability.”
“I also think we will continue to muddle through the euro crisis with a series of patchwork measures,” he said.
A study produced by Pastrick entitled B.C. Economic Forecast 2012-2016 predicts that real provincial Gross Domestic Product (GDP) will increase by 1.7 per cent in 2012 and improve slightly (2.2 per cent) during 2013.
GDP is expected to shift to above average growth and increase in 2014 (2.9 per cent), 2015 (2.7 per cent and 2016 (3.5 per cent).
The biggest risk to this continuing recovery is another recession.
Pastrick estimates the risk of a U.S. recession is currently about 30 per cent to 40 per cent, though a few analysts put it closer to 100 per cent.
Other risk factors include the European sovereign debt and banking crisis, and a slow down in China’s economy.
“Domestic developments remain important, and in some respects are more important than global events,” said Pastrick.
“Some notable domestic developments on the horizon are the reversion to the provincial sales tax (PST) system, a provincial election in 2013 and approval decisions on large energy, pipeline, and mining projects.”
The construction industry’s contribution to provincial GDP is expected to increase by 1.9 per cent to $10.514 billion ($2002) in 2012.
Construction GDP will continue to expand at a faster rate than all domestic industries and the overall economy in 2013 (3.9 per cent), 2014 ( 5.9 per cent), 2015 (2.6 per cent) and (5.2 per cent) 2016.
“New project investments will boost engineering and industrial building construction while housing and commercial building construction treads water with some slippage in public building construction,” said Pastrick.
“Non-residential construction will be the main growth driver in this industry with moderate uplift from the residential sector in the later part of the five-year forecast.”
The Northwest Transmission Line project will facilitate the development of new mines such as Red Chris, Schaft Creek, and others in the longer term.
The 287 kilovolt, 344 kilometre transmission line is scheduled to be completed in 2013.
The construction of Kitimat LNG and an associated pipeline, is scheduled for completion in 2013.
The $3.3 billion Kitimat smelter modernization and expansion project will be finished in 2015.
Port capacity expansions are planned in the Vancouver and Prince Rupert areas to handle container traffic, while construction of the Evergreen Transit Line will continue until 2016.
Total non-residential construction is expected to fall by 3.0 per cent to $13.517 billion (2002 dollars) in 2012, with the largest declines in institutional-government construction (-9.6) per cent and engineering construction (-5.4 per cent).
Non-residential investment is expected to increase by 8.3 per cent in 2013, 10.2 per cent in 2014, 0.8 per cent in 2015 and 3.9 per cent in 2016.
Population growth, which will remain just below 1 per cent during the forecast period will lead to below average levels of housing activity. Housing starts are forecast to remain below 30,000 units annually until 2015 or 2016.
According to Patrick, forestry and wood products manufacturing output will grow almost 20 per cent between 2011 and 2016 on a recovery in U.S. housing starts, which have been at historic lows since 2008.
Another positive factor is further expansion into China’s market even though wood products exports to China, including logs, will be down this year from 2011 due to a housing construction decline.
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