New Market Study Published: Canada Infrastructure Report Q4 2013

We have revised down our outlook for the overall construction industry in Canada for 2013 to 2.2%. This is being driven by a sharper than expected contraction in industry value creation from the residential and non-residential building segment. Despite this, we 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 our outlook for robust growth in the subsector unchanged.

Below trend construction industry data has prompted us to downgrade our 2013 forecast for industry growth, however, we are maintaining our 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.

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The greatest risks to our outlook come from a sharper-than-expected decline in the housing sector, as well as slowing demand and falling prices in the commodity sector, which are forcing developers to stall new capital investment, thereby impacting supporting infrastructure and industrial projects. We also note the growing detrimental impact of the regulatory environment on natural resource-related infrastructure. The rejection of the CAD5.5bn 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 Foundation For Growth

Infrastructure remains a fundamental element of Canada's construction industry growth, with a project pipeline in excess of US$120bn. Infrastructure growth should remain stable and solid, at around 4% over the medium term. There remains upside potential from major pipeline projects.

One of the strongest sub-sectors over our 10-year forecast period to 2022 will be railways, where a project pipeline worth US$36bn will drive annual average industry value real growth of 4.4% between 2013 and 2022. This growth will be driven primarily by urban rail projects, including the CAD8.2bn Eglinton Crosstown Light Rail Transit project, the US$2.6bn Toronto Subway Spadina line expansion, the US$2.1bn Ottawa Light Rail project and the US$1.8bn Edmonton Light Rail project.

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