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Commentary: Aggregates, roadbuilding and forecasting
Aggregates, roadbuilding and forecasting
June 30, 2008 By Andy Bateman
2007 saw much debate on the concept of “decoupling” and more recently “recoupling” between the U.S. and other major economies.
2007 saw much debate on the concept of “decoupling” and more recently “recoupling”
between the U.S. and other major economies. The decoupling view was fuelled by the extensive
quoting, and misquoting, of Chapter 4 in the April 2007 issue of the International Monetary
Fund’s World Economic Outlook. For a time, even heavyweights such as Goldman
Sachs argued that any U.S. economic woes would have much less impact on other world
economies than has been historically the case. Within the U.S., a key issue was the extent to
which a downturn in the residential sector would impact the U.S. consumer and the rest of
the economy. Fast forward to February 2008 where, driven by fears of a U.S. recession, the
decoupling concept seems to have lost and regained ground almost as fast as Canadian stock
values.
Given all the macroeconomic analysis, recent market turmoil, interest rate cuts and
gloomy U.S. forecasts, is it really possible to predict with any certainty what 2008 will hold
for Canada’s aggregate producers and roadbuilders?
Information gathered for the exclusive report in this issue would suggest that the answer
is still yes. In the report, comments from a number of producers and suppliers paint a picture
of continuing optimism in the western provinces and mostly solid performance elsewhere. In
terms of market demand, recurring themes include increased infrastructure spending, some
modest softening of residential construction and relatively fl at demand in the non-residential
sector.
A separate economic analysis, “Economic and Construction Outlooks for Canada in
2008”, by Alex Carrick of Reed Construction Data – CanaData, seems to be consistent with
this producer and supplier market feedback. Carrick cites three primary reasons why the
Canadian economy has performed better of late than the U.S. economy and expects these
factors to also help Canada perform relatively better than the U.S. going forward. Firstly,
high world commodity prices have been a boon for Canada’s large resource sector, particularly
oil. Secondly, Canadian housing starts have stayed strong and the proportion of subprime
and teaser-rate mortgages is much lower in Canada than in the U.S. Third, Canadian
governments have been in better shape than their U.S. counterparts and have rarely been in
better shape to undertake necessary infrastructure spending.
Mercifully, the words “decouple” or “recouple” don’t appear to be anywhere in the
analysis.
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