Articles Details


Author: STC
Article Date: 01.10.2018

The North American construction market continues to grow, largely driven by the US recovery. While Canada and Mexico provide limited opportunity,  they do both offer growth with relatively low risk. Real  construction in North America grew 1% in 2017, well below the GDP growth of 2.3%. Buoyed by federal tax cuts and spending increases, real GDP is projected to expand 2.9% in 2018 and 2.7% in 2019, pushing the unemployment rate down to 3.4% and fuelling inflation. In response to monetary tightening and capacity constraints, economic growth is expected to subside to 1.9% in 2020 and 1.6% in 2021. 
Construction has been in a rut with real core, the sum of single and multi-family construction, state and local government and private non - residential spending –declining 5.5% in the second quarter and likely contracting further in the third quarter. 
Canadian real GDP growth is recovering from its first quarter slowdown as exports and consumer spending revive and business and consumer surveys signal upward momentum. However, while non-residential capital spending remains strong, record household debt burdens will restrain construction spending and residential construction. With inflation well above the 2% target, the Bank of Canada will raise its policy rate by 3% by early 2020, helping to cool some of the country’s overheated markets. 
Mexico will have a new president from December, 2019 Andres Manuel Lopez Obrador of the National Regeneration Movement. While the new ruling party lacks the two-thirds majority needed to reverse constitutional reforms that have opened the energy sector to private investments, audits of contracts awarded in the infrastructure and energy industries are expected. 
Mexico is linked to the US economy through trade capital inflows and remittances. While the incoming administration supports the North American Free Trade Agreement (NAFTA), negotiations are likely to be protracted. Overall, tight fiscal and monetary policies will limit Mexico’s GDP growth to 2.3% in 2018 and 1.8% in 2019. While higher oil prices will be a boost, US tariffs on Mexico’s exports of steel and aluminum will hurt.
The US economy experienced strong job gains in 2017 and needs new constructions to accommodate expected further growth;  so  continued expansion in the commercial sector is expected. However, after several years of double digit growth, we estimate growth in the 7% range for 2017, falling to 4% by 2019.
Infrastructure spending is assumed to benefit from an infrastructure bill that will take effect in 2019. While we expect the bill to apply to all forms of infrastructure, it is likely to be oriented towards highways and streets. Accordingly, while total infrastructure could grow by around 5% in real terms in 2018, growth in road construction could exceed 10%. We expect a roughly even distribution of spending over the life of the legislation, so growth rates decline in 2019 and beyond, but the level of spending is much higher. Even without the legislation, there will be some increased demand, but growth would be lower.
The economic and political uncertainty affecting Mexico will hinder construction spending. Higher oil prices help Mexico less than they used to as the US has increased production from its shale fields, and domestic oil production has been declining in Mexico independent of global prices. 
The lack of confidence extends to the consumer, and we expect only 1.4% compound annual growth in residential construction over the next five years. Weak government revenue growth also dims the infrastructure outlook, with 2.9% compound annual growth expected over the next five years.