Industry Trend Analysis - Increase In Federal Spending Will Drive Industry Recovery - FEB 2017

BMI View: Federal infrastructure stimulus will be critical in offsetting private cuts in the extractive sector and returning Canada ' s construction industry to positive growth in 2017. Agreements between provinces and federal government will help to speed up the roll out of delayed funds and jumpstart the industry.

Our forecast for a return to growth in Canada's construction industry in 2017 is underpinned by federal stimulus dollars for infrastructure and a cooling of residential construction. Delays in the roll out of the much touted infrastructure focused stimulus programme have limited its impact on Canada's struggling construction industry in FY 2016-2017 (which ends in March 2017), where we are estimating a contraction of 3.4%. According to a report by the Office of the Parliamentary Budget Officer, government expenditures for the first half of FY2017 (April-September 2016) were CAD136.5bn. This represents a 3.7% increase from the previous year; however it falls well short of the increase in spending budgeted for that period, 5.6%, with the main culprit being delays in the implementation of planned infrastructure investments.

We expect acceleration in public spending on infrastructure in 2017, as deals have been reached between the federal and provincial governments facilitating the federal transfers intended for infrastructure spending ( see ' Trudeau Will Move To Jump Start Stimulus Efforts ' , 13 July 2016). Additionally, local and federal agencies charged with the implementation of projects have had more time to work out budgetary and technical details and funds not spent in FY2016-2017 have the potential to be spent over the remainder of calendar year 2017. However, we note downside to our forecasts for 2017 if budgeted stimulus funds are not forthcoming.

Stimulus Funds To Jumpstart Heavy Construction
Canada - Residential and Engineering and Other Construction Activities Value CADmn (2007 CAD), And Total Construction Real Growth % y-o-y
Source: Statistics Canada, BMI

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