February 25, 2013

Construction expected to lead growth in British Columbia

RICHARD GILBERT

staff writer

The construction industry will expand faster than all other domestic-oriented industries in British Columbia over the next five years, while the overall economy will improve slowly and then shift to stronger growth.

“The U.S. is expected to gain speed during 2014 to 2017, which will help lift B.C.’s economy to higher growth rates after 2013,” said Helmut Pastrick, chief economist for Central 1 credit union.

“The (B.C.) housing slowdown this year will reduce residential investment. The mild correction in the housing market will pull down economic growth in 2013 and 2014. Fewer housing starts in 2013 are a near certainty in an environment of declining housing sales and prices.”

Pastrick recently produced the B.C. Economic Forecast 2013-2017 which predicts real provincial Gross Domestic Product (GDP) will increase by 2.2 per cent in 2013, before accelerating to 2.7 per cent during 2014.

Real GDP is expected to shift to above average growth in 2015 (3.3 per cent), 2016 (3.9 per cent) and 2017 (3.9 per cent). In 2012, real GDP inched ahead by 1.9 per cent.

The fastest growing industries in the medium-term forecast (2013-2017) are mostly export-oriented industries including forestry, wood products manufacturing, mining, primary metals manufacturing, and professional-technical-business-support.

Domestic oriented industries led by construction, retail-wholesale trade, and other services (largely personal) will grow at a slower pace.

“New project investments will boost engineering and industrial building construction while housing and government construction slips in the near term,” 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 construction industry’s contribution to provincial GDP is expected to increase by only .3 per cent in both 2013 and 2014. However, construction GDP will expand faster than the overall economy in 2015 (7 per cent), 2016 (8.6 per cent) and 2017 (4.8 per cent).

Total residential construction is expected to decline by .6 per cent to $12,482 billion ($2002) in 2013, but will increase by 1.6 per cent in 2014, and will continue to increase in 2015 (6.8 per cent), 2016 (8.9 per cent) and 2017 (7.9 per cent).

Total non-residential construction is forecast to increase by 3.6 per cent to $12.941 billion in 2013 and will continue to increase in 2014 (5 per cent), 2015 (8.9 per cent), 2016 (9.3 per cent). But, in 2017, non-residential construction will decrease by .5 per cent.

B.C. has a large number of proposed major projects in energy, mining, transportation, and other major non-residential projects that could boost future investment spending.

Liquefied natural gas (LNG) exports to Asia offer longer term growth potential as evidenced by the likely construction of an LNG plant in the near future.

The Northwest Transmission Line is scheduled for completion in 2013, which will facilitate the development of new mines such as Red Chris, Schaft Creek, and others in the longer term.

Mount Milligan Mine, which is currently under construction, will be B.C.’s first new mine in many years.

It’s scheduled for full commercial production in 2014.

The $3.3 billion modernization and expansion of the Rio Tinto Alcan aluminum smelter in Kitimat is creating several hundred construction jobs and boosting spending on machinery and equipment as well as non-residential industrial building construction.

Port capacity expansions are planned in the Vancouver and Prince Rupert areas to handle future traffic.

Oil pipelines from Alberta to the north coast are too uncertain to include in the investment forecast.

Construction of the Evergreen rapid transit line has begun and will continue through 2016.

Domestic developments will also shape the province’s economy and in particular, the reversion to the provincial sales tax (PST) system from the harmonized sales tax (HST) will lift consumer spending and provide some inflation relief, though this will add business costs.

According to Pastrick, the biggest risk to this medium-term economic forecast is the expected upswing in US economic growth in 2014 and beyond.

“A release of domestic pent-up demand during the next five years will drive the current business cycle into a long duration cycle – the third consecutive long cycle since 1990,” said Pastrick.

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