Canadian Construction Industry Displays Greater Positivity Amid Wider Economic Obstacles

Photo credit: Burst

The Q2 2023 report from the Royal Institution of Chartered Surveyors (RICS) and the Canadian Institute of Quantity Surveyors revealed that the Canadian construction sector has demonstrated resilience amid economic uncertainties.

The Construction Activity Index experienced a slight uptick, moving from +23 per cent to +28 per cent, mainly driven by infrastructure projects. However, similar to the situation in the United States, a shortage of skills is hampering progress.

According to the report, this trend is prevalent throughout the industry except for the micro sector. Even there, respondents remain only slightly less optimistic than they were in Q1 (with a +22 per cent outlook compared to +25 per cent). Geographically, Alberta stands out with strong numbers, benefiting from a focus on natural resources, while British Columbia and Quebec show modestly positive results.

The data indicates an accelerating investment in national infrastructure. The net balance for workloads in this sector rose from +34 per cent to +41 per cent, with energy and transport projects experiencing the most substantial growth, according to respondents.

The report noted that confidence prevails in the industry, with an expectation of sustained momentum. Although there’s a slight risk of a mild recession in the second half of the year, new business inquiries surged to +38 per cent from +21 per cent, marking the highest net balance reading in five quarters. This optimistic sentiment extends to workload projections for infrastructure over the next twelve months, with a promising net balance of +46 per cent. Similarly positive attitudes are reflected in non-residential (+34%) and residential (+22 per cent) workloads.

The Bank of Canada’s tightening monetary policies, akin to those in other nations, have introduced financial constraints and a more restrictive lending environment. These challenges, however, have been contained for the time being. About two-thirds of respondents report financial constraints affecting their activities, consistent with the past four quarters.

Much like the global construction industry, Canada continues to grapple with labor and skills shortages. Skilled trades remain a significant problem area, and feedback indicates difficulties in hiring quantity surveyors, while profit metrics convey a mixed message.

All things considered, Canada’s construction sector is holding up relatively well and showcasing resilience in the face of broader economic challenges and global headwinds.

“With all the talk of inflation, continually rising interest rates, and an expected economic slowdown in the latter half of this year, it was invigorating to read that the workload in the construction sector stands firm, not only in infrastructure, but also (more moderately) in the residential and commercial sectors, with an overall positive outlook across Canada,” said Sheila Lennon, CEO of CIQS.

“A survey by the Conference Board of Canada echoed this optimism with most respondents stating their finances remained stable, and 13.2 per cent believing their finances had improved, despite the Bank of Canada’s determination to do everything it can to curb inflation. With Canada’s real interest rate currently the most restrictive amongst the G7 countries at a time when Canada’s unemployment rate is at its highest since February 2022, I question, will the BoC’s strategy inevitably see a decline in consumer confidence, or will the increased need for housing and infrastructure enable us to maintain a positive outlook for this industry?”

Simon Rubinsohn, RICS chief economist said, “Despite the heightened financial pressures being faced by the industry, it is reassuring that feedback to the Q2 RICS-CIQS Construction Monitor shows respondents reporting that current workloads are continuing to grow and that they expect this trend to, if anything, accelerate over the next twelve months. Moreover, it appears to not just be the infrastructure sector where the mood remains positive. That said, skill shortages and labour supply in general remain key challenges for the industry as it aims to deliver on its ambitious plans.”

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