Business Monitor has just released its latest findings on Canada’s expanding infrastructure sector in its newly-published Canada Infrastructure Report.
Business Monitor has revised down their outlook for the overall construction industry in Canada for 2013 to 2.2 per cent. This is being driven by a sharper than expected contraction in industry value creation from the residential and non-residential building segment. Despite this, they anticipate a slight pick-up in the second half of the year will ensure that subsector maintains positive growth. On the other hand, infrastructure will post another year of solid performance, with Business Monitor’s outlook for robust growth in the subsector unchanged.
Below-trend construction industry data has prompted Business Monitor to downgrade their 2013 forecast for industry growth, however they are maintaining their view that Canada will be one of the best performing developed markets over the near term. Growth will be supported by high-value infrastructure projects across the transport and energy sectors, as well as social infrastructure, industrial projects, and a housing market that whilst slowing, should remain positive.
The greatest risks to Business Monitor’s outlook comes from a sharper-than-expected decline in the housing sector, as well as slowing demand and falling prices in the commodity sector, forcing developers to stall new capital investment, thereby impacting supporting infrastructure and industrial projects. They also note the growing detrimental impact of the regulatory environment on natural resource-related infrastructure. The rejection of the CAD$5.5 billion Northern Gateway pipeline sets a poor precedent for other similar projects; whilst the objections to plans to expand coal export capacity is a concern for investment taking place into expanding coal production.
Infrastructure remains a fundamental element of Canada’s construction industry growth, with a project pipeline in excess of US$120 billion. Infrastructure growth should remain stable and solid, at around 4per cent over the medium term. There remains upside potential from major pipeline projects.
One of the strongest sub-sectors over Business Monitor’s 10-year forecast period to 2022 will be railways, where a project pipeline worth US$36 billion will drive annual average industry value real growth of 4.4 per cent between 2013 and 2022. This growth will be driven primarily by urban rail projects, including the CAD$8.2 billion Eglinton Crosstown Light Rail Transit project, the US$2.6 billion Toronto Subway Spadina line expansion, the US$2.1 billion Ottawa Light Rail project and the US$1.8 billion Edmonton Light Rail project.
There is further upside potential to Business Monitor’s forecast from freight rail projects, however, with the CAD$5 billion Cóte Nord rail project in Québec temporarily suspended in February 2013 due to weak demand, they have seen verification for their decision to withhold these projects from their forecast. In November 2012, a CAD$8.6 billion railway project to transport crude from Alberta’s oil sands to Alaska moved forward. The project has support from First Nations groups and is seeking financing to produce a feasibility study.
The other booming sector is electricity, where they see US$36 billion worth of projects under way or in the planning stages. Huge generating stations are under construction, including the US$6.2 billion Lower Churchill Hydropower Project, the US$2.6 billion Lower Mattagami Hydropower Project, the 918MW Eastmain-1-A/ Sarcelle/Rupert Project, as well as extensive transmission line projects, including the 1,380km US$3.3 billion Bipole III transmission line and the US$1.6 billion Eastern Alberta and US$1.4 billion Western Alberta transmission lines. Wind power projects are also being developed across the country, although regulatory uncertainty weighed on 2012 projects, 2013 is expected to be a record year for new installations, which presents upside to their 2013 forecast for the sector. Overall, they are forecasting 4.5 per cent average real growth per year between 2013 and 2022 for the power plants and transmission grids sub-sector.
The report also sees strong upside for the overall energy and utilities sector from oil & gas pipelines. They have registered over US$40 billion worth of pipelines in the planning phase, which would provide a significant boost to industry value creation if they all progress. Business Monitor are pricing in a minimal realization of pipelines over the medium term, based on the complex and arduous regulatory procedures for the projects. Indeed, with the rejection of the CAD$5.5 billion Northern Gateway pipeline in June 2013, and a major uphill battle ahead for the CAD$12 billion Energy East Pipeline, they are not factoring in any substantial build out in new pipelines. As it stands, they are anticipating annual average growth of 3.7 per cent in the oil and gas pipelines sub-sector between 2013 and 2022.