Bracing for Economic Winter

Don Procter

December 2008

While the global financial crisis hasn’t hit Canada as hard as the United States and many European countries, this is hardly a time for Canadians to go around proudly beating their chests. What looks like good news today can turn bad in a flash.

The accuracy of any economic forecast could be likened to "standing up in a convertible while driving under a bridge: It’s quite risky and the results may be quite messy,” says Alex Carrick, chief economist, CanaData, a major Canadian economic forecast and construction data agency.

Still, for many wall and ceiling contractors in the Greater Toronto Area, 2009 looks like a good year. That’s because the city and Canada in general are better prepared to face tough times ahead than many countries. Canada goes into the storm without a federal deficit, its banks remain solid, unemployment numbers are low and there are very few signs of overbuilding—at least in Toronto.

Carrick says while single family housing starts in Toronto were down for the first three quarters of 2008 by 17 percent over 2007 and are expected to continue to trail off in 2009, multiple-family starts were up a whopping 70 percent over 2007. That strength is buoyed largely by the pumped highrise condo market. Residential tower cranes are ubiquitous in the inner city and in pockets throughout the GTA.

"You’re not seeing this kind of thing happening anywhere else in Canada,” Carrick says.

He reasons the condo boom is largely a reflection of foreign investors (think China and the Middle East), and Toronto empty-nesters giving up single-family homes for suites in the sky. That fast pace is expected to slow next year but still remain a good market for many drywall contractors.

Ron Johnson, deputy director of the Interior Systems Contractors Association of Ontario, says he expects to see some growth in the ICI sector next year. Big hospital projects are a good example.

That may be the case, but Carrick says the global problem could make it increasingly difficult for the federal and provincial governments to secure financing.

There are ways that governments can finance projects that the private sector can’t, however. Private sector bridge financing, for example, is one means for mega-buck hospital projects. Still, once these projects are completed, the government must write checks for the construction costs. Coming up with that money will be more difficult for governments in part because tax revenues will slide as unemployment rises.

The federal re-election of Stephen Harper’s Conservatives in October shouldn’t have a dramatic impact on wall and ceiling contractors in Toronto. "We have a much closer relationship with the provincial government,” Johnson says. Still, feds could kick in infrastructure capital toward provincial government projects such as hospitals and schools that could benefit the drywall trade.

The fluctuating Canadian dollar (it traded 13 cents over the U.S. dollar in July and 14 cents below the U.S. greenback in October) also shouldn’t have much of an effect on Toronto drywall contractors. But if the Canuck dollar soars above the greenback in 2009, (some analysts predict it will trade 13 cents above the U.S. dollar by next year’s end), the manufacturing sector of Ontario (once the lifeblood of the province) will continue to be decimated. That could have a long-term impact on Ontario and Toronto’s building economy.

Carrick and other economists say the Canadian federal government will likely have to run a deficit in the next couple of years. The good news is that Canada isn’t entering the tough global times in a poor financial position.

"Almost all of our economic numbers are better than the United States, so we’re better prepared for what’s ahead,” Carrick says.

Don Procter is a free-lance writer in Ontario, Canada.