Despite an expected nationwide dip in home building, Canada's construction industry is expecting another robust year, according to the latest forecast from the Canadian Construction Association.

"There's still a great deal of optimism and happiness that 2006 is expected to be just as strong as 2005, with the exception of the residential sector," Jeff Morrison, the association's spokesman, told Business Edge.

In its recent five-year forecast, the association says that while national residential construction is expected to decline by 2.8 per cent this year, overall the construction industry will grow at a rate of 1.2 per cent this year and 0.9 per cent in 2007. Annual advances are expected to be 1.6 per cent from 2008 to 2010.

Following a strong year of 3.9 per cent growth in 2005, the non-residential construction sector will post growth of 3.3 per cent this year, the association forecast says.

Manley McLachlan

Morrison says oil and gas projects, electrical power engineering and transportation engineering will lead the non-residential construction industry.

While residential construction is expected to decline in 2006 after increasing 1.1 per cent in 2005, Morrison says the sector is still at a historically high level. Drops in home building are being blamed on rising interest rates and a saturated market.

"When you look at the residential sector from an historical standpoint, it's still going to be a very good year for them," he says. "In a 10-, 20-year time frame, this is still a very healthy residential sector we're expecting in Canada."

The forecast predicts the construction industry's overall real gross output will be $164.2 billion in 2006 compared to $159.5 billion in 2005. Real gross output is the value of all construction put in place, plus the cost of material and service inputs required to deliver a project.

Average annual employment in construction in 2005 was one million, up 5.4 per cent from the previous year. The forecast predicts a 0.8-per-cent increase in 2006 to 1.01 million jobs, followed by a 0.7-per-cent increase in 2007 to 1.02 million jobs.

In 2005, construction accounted for 6.2 per cent of total employment nationally, up from 5.2 per cent in 1995.

British Columbia, Manitoba and Quebec are expected to lead the country in construction growth in 2006, with most of the other provinces experiencing declines, mostly due to lower residential construction numbers, Morrison says.

Ontario is expected to see total construction decline by 2.3 per cent in 2006 after an increase of 4.8 per cent last year.

"They are expecting a bit of a weaker year partially because of the manufacturing sector and because Ontario is such a base of manufacturing," Morrison says.

"That sector won't be investing as much in structures and factories and warehouses and the like because of a weaker dollar and reduced demand."

The forecast predicts a decline in construction of 3.1 per cent for Alberta in 2006, similar to the 3.8-per-cent decline in that province in 2005.

British Columbia's total construction is expected to grow by 6.9 per cent this year, although that is about half the 13.9 per cent it achieved in 2005.

Manley McLachlan, president of the British Columbia Construction Association, says he isn't too worried, however. "The last couple of years are starting to exceed any of the peaks that this province has seen in the past."

Much of British Columbia's construction success is due to preparations for the 2010 Winter Olympics in Vancouver. But while more than $750 million will be spent on Olympic facilities, it is only part of the construction story.

Other projects under way include a new rapid transit line that will connect downtown Vancouver with the suburb of Richmond and the city's airport; a $500-million convention centre in the city centre; a $650-million improvement to the Sea to Sky Highway; a $400-million hospital in Abbotsford; and an environmentally friendly building in Victoria that's slated to cost $350 million.

McLachlan says the province also is experiencing a tremendous demand for residential housing, particularly in the high-rise market, as well as new investment in the commercial, industrial and institutional sectors. "As populations increase, the demands for schools and other things increase along with it," he says.

McLachlan believes a lot of the credit for his sector's success falls at the feet of the provincial government, which is in its second term. The government has created favourable conditions by working hard to clear red tape for investors and by providing more attractive taxation policies, he says.

"We've got to give them credit for reshaping the investment climate here," says McLachlan.

The one major problem the province's construction industry faces is a skilled labour shortage, the CCA's Morrison says.

"Everyone likes good times, but of course good times bring challenges, too," he says. "With this prosperity that this industry is enjoying we are seeing greater challenges in other areas that need to be addressed - the most obvious is the labour situation."

Morrison notes the head of the Olympic organizing committee has warned that preparations for the 2010 Games may experience some cost overruns that can be directly attributed to shortages in skilled labour.

A similar problem is already occurring in Alberta, he says, where there are shortages in the oilsands projects of pipefitters, electricians, welders and other skilled tradespeople.

"That's going to be a big issue for us (in Canada) - how do we recruit, attract and retain young people and what sort of policies do we need to put in place?" Morrison says.

Saskatchewan was nipping on the heels of the British Columbia construction industry last year in terms of percentage growth at 10.6 per cent. This year, growth is expected to be a less impressive 0.8 per cent.

But Saskatchewan Construction Association president Michael Fougere isn't convinced the forecast will be correct.

"I'm not sure we're going to be down that much," Fougere says. "I know we will not have as much activity, but my view, and from what I hear from my members across the province, is that they are busy and they expect to be busy (this) year."

He attributes this year's forecasted drop in Saskatchewan to a number of large projects wrapping up.

The housing market has also softened, as it has across Canada.

Saskatoon, Fougere says, had the highest growth of any Canadian city and several skyscrapers are being built in the city.

Among the large projects in Saskatchewan are new investments in roads and sewers due to transfer payments from the federal government, a new jail that will be built by the province outside Regina and some extensions to the University of Regina.

There is also a new uranium mine coming onstream, Fougere says.

Manitoba's construction industry is expected to grow by 16.3 per cent, up from a decline of 5.4 per cent last year.

Morrison attributes much of that growth to new projects in the province's hydroelectric sector.

Quebec is forecast to grow by 9.7 per cent due to some large hydroelectric projects, up from an 0.8-per-cent increase last year.

Newfoundland's construction industry is expected to grow by 2.2 per cent, down from 4.8 per cent in 2005.

Prince Edward Island's construction industry is expected to decrease by eight per cent after 5.8 per cent growth last year, while Nova Scotia's is expected to fall by 5.3 per cent, versus a decline of 4.6 per cent in 2005.

It's anticipated New Brunswick's industry will drop by 8.5 per cent compared to a drop of 1.8 per cent last year.

(Frank Armstrong can be reached at armstrong@businessedge.ca)