Oil and gas services will continue to be among the fastest-expanding industries in Canada over the next two years while other sectors, such as construction and textiles, should show a slowdown, the Bank of Montreal predicts.

Non-electrical machinery, mineral extraction, electronic products and wholesale trade will also excel, according to a report from the economics department at the bank.

“Strong global demand and high prices for key commodities, as well as an increase in business investment and growing international trade, will again be dominant factors driving certain industries ahead of the rest,” Earl Sweet, assistant chief economist, said in a release.

Leading the way in 2006-2007, the report says, will be oil and gas services, benefiting from the stimulus of high commodity prices, intensive exploitation of existing oilfields and development of new reserves.

“The boom in oilsands developments will significantly boost activity in non-residential construction and peripheral industries such as equipment rental and leasing,” Sweet said.

Among other sectors, metal mining and refining in Canada should continue to expand at a brisk pace to meet global demand, the report says.

Production of machinery and equipment should also show strong gains in the next two years, with the usual strengthening of business investment in the mature stage of the cycle spurring growth in demand.

Meanwhile, the need to boost productivity will add strong emphasis on investment in technology-intensive equipment, including electronic products and computers, the report says.

Other sectors will experience slowdowns.

“For instance, a projected slowdown in North American house building — a major driver of economic activity over the past several years — will restrain output in several industries, including construction, building materials, wood products, plastic products and furniture,” the bank says.

Globalization trends are expected to maintain intense restructuring pressure on labour-intensive industries such as textiles, clothing and leather, amid stiff competition from countries such as China.

“The troubles at the traditional Big Three automotive giants will cloud the outlook for the Canadian auto sector, both on the assembly and parts sides,” the bank says.

“Although the bulk of recently announced capacity closures will take place in 2008, output in the sector is expected to slow prior to that date.”