Energy sector woes
Much has been said, and certainly written, about the construction of the Trans Mountain Pipeline and what it will mean to the Alberta economy. Although construction has resumed, it remains an uphill battle.
Despite the mass exodus of energy companies, either fleeing or ceasing operations, there has been some good news for the sector. Inter Pipeline plans to spend $935M on the Heartland Petrochemical Complex in 2020 and on the heels of the elimination of curtailments on conventional drilling, CNRL announced an increase in their 2020 investment budget of $250M. Although a paltry sum when you look at total capital expenditures, it is somewhat reassuring that there is still hope for our staggering energy sector.
What the Data Indicate
ATB Financial is cautiously predicting another challenging year for Alberta with a projected GDP of only 0.9% for 2020 and 2.1% for 2021, less than our 20 year average of 2.8%. Pipeline bottlenecks, oil production curtailment, sluggish investment, depressing retail sales, high unemployment in construction and the energy sector and declining agricultural exports are weighing heavily on economic growth.
The Conference Board of Canada was more bullish in its forecast, expecting 2.4% growth for 2020 and 3.1% for 2021, despite Moody’s Investors Service downgrading Alberta’s credit rating. The recent Government of Alberta budget optimistically assumes that real GDP will exceed average growth out to 2023 (see chart 1). The Kenney government is expecting that corporate tax cuts and improved market access will attract investment and lead to increased employment and growth.
On the Horizon
The Bank of Canada recently announced that Governor Stephen Poloz will not be renewing his term in June 2020. He did an excellent job at managing monetary policy given all the economic uncertainties both nationally and globally. Canada’s inflation, currency and interest rates have remained fairly stable under his leadership. “The Bank and its staff are well-positioned to continue to promote the economic and financial welfare of our nation” (Claire Kennedy, Bank of Canada, Dec. 2019).
The liberals recently projected operating deficits out to 2025 to fiscally stimulate investment and growth. Morneau’s proposed amendment to the Income Tax Act (to increase the Basic Personal exemption) will put more money in the hands of Canadians which will help boost the consumption portion of GDP. At the provincial level, the controversial corporate tax cut to be phased in over the next four years is expected to attract investment and create more jobs.
Recent announcements from top U.S. and Mexico trade negotiators indicate that the USMCA (formerly NAFTA) ratification is a done deal and will surely ease the concerns of investors and effected industries. Many companies, holding back on further expansion, are concerned about the disruption of long-established supply chains. The current U.S./China trade war, combined with global protectionism and rampant populist policies, is threatening global stability.
A new future
We are on the cusp of the fourth industrial revolution with the emergence of artificial intelligence that will have a profound effect on production. With global digitalization will come exponential economic expansion that will revolutionize all industries, including manufacturing and construction. Companies that are well equipped to invest in and embrace new technologies will benefit from the optimization of production, revolutionizing the steel building and construction industry.
We will see a renewal of investment, a transformation of traditional industries and most certainly a disruption in the global labour market. The construction sector placed second on the OECD’s list of industries to be at risk of positions being phased out due to automation.
So how do we prepare for the new world? One thing is for sure: complacency will lead to vulnerability. Businesses need to exercise financial discipline, continually invest in new technologies and education, collaborate with government, educators and stakeholders and attract a talented and innovative workforce. As the Alberta Metal Building Association, we have strength in numbers and are well-positioned to play a collaborative role with industry regulators, educators, and active participants to advocate for our stakeholders and ensure that steel building construction continues to thrive in this ever-changing environment.