Canada’s construction SMEs resilient despite tight economic market
Despite a challenging economic climate marked by rising borrowing costs and market uncertainties, findings from the Canadian Construction Association’s (CCA) ICIC Construction Quarterly Insights, published in August 2024, report that construction SMEs have demonstrated remarkable resilience to maintain stability in the marketplace.
Canada’s economy experienced modest growth in the first quarter of 2024, with GDP rising by 0.6 per cent. This slower growth has contributed to a more favourable inflation outlook. In response, the Bank of Canada implemented two consecutive rate cuts in June and July, bringing the overnight rate down to 4.50 per cent. Further rate cuts are anticipated throughout the year.
Key takeaways
Return to historic bankruptcy rates and new business growth demonstrate industry’s resilience
The Canadian construction industry, predominantly composed of small and medium-size enterprises (SMEs), has faced a challenging environment in recent years. Recent downturns and monetary tightening have increased borrowing costs, which have played a major role in entry and exit trends among SMEs. Despite these challenges, the construction industry has demonstrated resilience by adjusting strategy to maintain stability amidst rising costs. Since 2019, the construction industry has seen an increase of 7,500 active businesses, representing a growth of six per cent. This is the fifth highest growth rate among all industries.
From 2019 to 2023, bankruptcies and proposals varied widely across industries with the overall rate averaging 30.6 per cent. The construction sector hit historic lows in bankruptcy in 2020, but bounced back to its historical average by the end of 2023, The industry accounted for the second-largest share of new business entries among all industries, with approximately 23,000 firms entering the market.
Demand for skilled workers contributing to positive labour trends
Labour trends in construction continue to show positive signs, with sustained employment gains highlighting a robust demand for skilled workers. While this quarter showed a decline in job vacancies within the construction sector, the numbers remain significantly higher than pre-pandemic averages.
Meanwhile, unemployment within the construction industry remains stable. The industry’s ability to maintain stable employment levels amidst an economic downturn stresses the ongoing need for labour, driven by steady population growth and a high volume of active projects.
Slump in residential construction not impeding growth in non-residential sector
Following trends in the broader economy, the construction industry experienced slow growth, primarily due to a significant downturn in residential construction. Non-residential, repair, and engineering construction sectors posted positive growth in the first quarter. Investments in non-residential construction extended their growth streak to nine consecutive quarters.
BCPI slows for five quarters, signaling eased construction costs
The Building Construction Price Index (BCPI), a measure of contractor’s change in price that includes all materials, labour, equipment, overhead and profit to construct a new building, has decelerated for five consecutive quarters, indicating a moderation of construction costs.
What’s ahead for the industry?
The outlook for the remainder of 2024 is optimistic but not without risks. Continued interest rate adjustments, the impact of interest rate differentials with the U.S., renewed focus on multi-residential construction, and navigating geopolitical tensions remain key considerations for the industry.
For more information on this report or the work CCA is currently focused on to address the issues covered, please email Louis-Philippe Champagne, Associate Vice-President, Public Affairs and Industry Practices, or Mario Baker, Assistant Manager of Economics and Policy Development.