According to RICS’ new quarterly Canada Construction and Infrastructure Survey, fears about implications for economic activity have deepened. Despite a huge array of government fiscal interventions (worth in the region of 14 per cent of GDP), the recovery process is likely to be protracted.
“It is clear that professionals expect governments to boost infrastructure spending on the road to economic recovery,” said Sean Ellison, senior economist at RICS. “This will provide a ray of light amid the gloomier outlook for the sector, perhaps pointing to a way out of the current downturn.”
Some key findings include the anticipation that workloads are to remain subdued over the next 12 months, with employment projected to drop and, most notably, profit margins viewed as coming under significant pressure.
Generally, shortages of skills and labour continue to be highlighted as obstacles to activity by survey participants (with the inference that they will again be relevant when the lockdown ends). However, the proportion of respondents signalling concerns about these issues has diminished somewhat since the end of last year. For skills, the proportion identifying this to be a problem has dropped from over 60 per cent to less than 50 per cent. And for the wider category of labour, it has slipped from just under 60 per cent to close 40 per cent.
Predictably, insufficient demand is now viewed as more of threat with an increasing number of responses noting material shortages as a barrier. Financial constraints remain an ongoing theme although encouragingly for now at least, this issue doesn’t appear to be worsening.
“Three months ago, the skilled labour shortage was top of mind for survey respondents, whereas today the focus has shifted more towards dealing with shrinking profit margins, material shortages, and customers reluctant to continue work. The fluidity of the COVID-19 pandemic has forced individual companies and entire industries to find creative and adapti,” said Sheila Lennon, CEO, Canadian Institute of Quantity Surveyors.
The survey also shows a substantial disparity in conditions based on geography. In net balance terms, workloads in the Prairies and Northwest Territories contracted at a much quicker pace than in other parts of the country. The bulk of respondents in this region are based in Alberta and also dealing with the fallout from the collapse in oil prices. This dynamic is mirrored in other metrics, most notably expectations for tender prices and construction costs, where deflation appears to be a significant risk
Respondents from British Columbia noted a sharp reversal in activity. After reporting increasing workloads in all sectors (including infrastructure) in Q4 of 2019, construction market activity was said to have contracted, albeit modestly, at the start of 2020.
There are some signs that this will persist in the near term with new enquiries and new workloads contracting, as delays in payment are rising. There does not yet appear to be a significant reduction in headcounts, however. Contributors appear to believe that it may get worse before it gets better.
