2014 Ontario Budget
Chapter II: Ontario's Economic Outlook and Fiscal Plan

Section C: Ontario's Economic Outlook

The risks to global economic growth, including financial-market vulnerabilities, have persisted through the recovery and have translated into weaker-than-expected growth. Ontario is not immune to these global developments and needs to continue to build a globally competitive, resilient and diverse economy.

Ontario’s economy continues to grow at a moderate pace in a challenging global economic environment. Stronger U.S. growth and the decline in the value of the Canadian dollar will help boost Ontario exports and encourage stronger business investment. Household spending, which accounts for close to 60 per cent of the economy, is also expected to strengthen.

The Ministry of Finance is forecasting growth in real gross domestic product (GDP) to double from 1.3 per cent in 2013 to 2.6 per cent by 2017.1

TABLE 2.5 Ontario Economic Outlook
(Per Cent)
   2011 2012 2013 2014p 2015p 2016p 2017p
Real GDP Growth 2.2 1.3 1.3 2.1 2.5 2.5 2.6
Nominal GDP Growth 4.0 3.0 2.7 3.5 4.4 4.4 4.6
Employment Growth 1.8 0.8 1.4 1.1 1.5 1.6 1.4
CPI Inflation 3.1 1.4 1.0 1.5 1.9 2.0 2.0
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.

While prudent management and forecasting mean that this Budget reflects the private-sector consensus for growth, the government believes the investments being made in skills and knowledge, in infrastructure and in business will pay real economic dividends in both short and long term, leading to higher growth.

Since the global recession in 2008–09, Ontario has emerged stronger. Major indicators, including real GDP, employment, exports, household income and consumption, have posted strong gains since the recession.

Recent Economic Developments

Although moderate, the sustained growth of Ontario’s economy has supported continued gains in employment. In 2013, Ontario employment increased by a solid 95,700 new jobs (+1.4 per cent), improving on a gain of 52,400 jobs in 2012. Last year, 64.7 per cent of jobs gained were full-time positions and 68.2 per cent were in the private sector.

The steady job growth resulted in Ontario’s unemployment rate declining to 7.5 per cent in 2013, well below the recessionary high of 9.4 per cent in June 2009.

Ontario’s real GDP increased 1.3 per cent in 2013, matching the gain in 2012. Solid gains in consumer spending and net trade supported economic growth last year.

The view among private-sector economists is that Ontario is well positioned for continued economic growth over the forecast period.

Ontario’s Recovery

All major economies around the world faced setbacks during the 2008–09 recession. In Ontario, real GDP declined by 4.8 per cent from the second quarter of 2008 to the second quarter of 2009. Employment dropped by 265,800 net jobs from September 2008 to the recessionary low in June 2009.

The Province continues to take measures to strengthen the economy and support jobs by strategically investing in globally competitive sectors. Ontario’s economic recovery has been supported by household spending and residential construction, as well as government investment in infrastructure and business investment in plant and equipment. Major indicators, including real GDP and employment, are now well above pre-recession levels. As of the fourth quarter of 2013, Ontario’s real GDP had increased by 10.3 per cent from the recessionary low and was 5.1 per cent above its pre-recession peak.

Since the recessionary low in June 2009, 459,500 net new jobs have been created. A strong recovery of 463,400 full-time jobs accounted for all the employment gains since the end of the recession. The majority of the net new jobs were in the private sector and in industries paying above-average wages. As of March 2014, Ontario had 193,700 more jobs compared to the pre-recession peak in September 2008. Ontario’s unemployment rate has declined from a recessionary high of 9.4 per cent in June 2009 to 7.3 per cent in March 2014.

Since the global recession, the pace of job creation in Ontario has been stronger than in most developed economies, including the United States and most OECD2 countries, including Sweden, Germany, the United Kingdom, France and Japan. In addition, the pace of job creation in Ontario since June 2009 is ahead of all the Great Lakes States and the rest of Canada.


Global Economic Developments and Outlook

The global economy grew by 3.0 per cent in 2013, following a gain of 3.2 per cent in 2012. In the United States, economic growth gained momentum through 2013, supported by stronger exports and household spending. In Europe, modest growth resumed in the second quarter of 2013, following a year-and-a-half-long recession. Growth in emerging and developing economies eased in 2013 as foreign capital outflows and financial-market volatility led to sharp currency devaluations for several countries.

Global economic growth is set to improve in 2014, led by stronger growth in advanced economies. In particular, stronger economic activity in the United States is expected to be a substantial driver of global growth. Europe is also expected to sustain a modest recovery, although growth remains uneven across euro-area countries. In Japan, aggressive monetary stimulus and increased government infrastructure spending are projected to offset the impact of tax increases.

Economic growth in China is expected to remain relatively robust, as the country transitions from a reliance on exports and investment to a more balanced economy, with rising domestic consumption. Other emerging markets are expected to strengthen, as they benefit from stronger growth in global demand. However, economic challenges, capital outflows and political instability in some emerging economies could lead to more moderate growth and greater volatility.

U.S. Economy

The United States is Ontario’s largest trading partner, a reflection of geography and business ties. More than 160 million consumers can be reached within a day’s drive of southern Ontario. The U.S. market is particularly important for many Ontario industries, accounting for 80 per cent of exports of motor vehicles, furniture, plastics and steel.

The U.S. economy accelerated in the second half of 2013, with real GDP growth averaging 3.4 per cent (annualized) compared to average growth of 1.8 per cent over the first two quarters. Employment gains averaged 194,000 jobs per month in 2013, while the unemployment rate fell from 7.9 per cent in January 2013 to 6.7 per cent by year-end.

The U.S. Federal Reserve has judged underlying economic conditions to be strong enough to begin reducing monetary stimulus. At the same time, U.S. fiscal policy is expected to be less of a drag on economic growth in 2014. More importantly, the political uncertainty surrounding the U.S. federal government’s budget and debt ceiling has abated, providing much-needed support to consumer and business confidence.

The U.S. trade deficit narrowed sharply in 2013, largely due to reductions in energy imports. Stronger net exports should provide a further lift to U.S. growth in 2014, aided by improving global economic prospects.

U.S. household net wealth has more than recovered from losses experienced during the recession, supported by strong equity market gains and rising house prices. Improved household wealth, combined with growing employment and rising wages, will lift household incomes and support stronger consumer spending.

U.S. economic growth is projected to strengthen from 1.9 per cent in 2013 to 2.7 per cent in 2014 and 3.0 per cent in 2015. U.S. motor vehicle sales are expected to reach 16.0 million units in 2014, up 3.3 per cent from 2013, and 16.4 million units in 2015, up 2.5 per cent from 2014.

Oil Prices

Oil prices fluctuated through 2013, reflecting supply interruptions and geopolitical tensions. The price of West Texas Intermediate (WTI) crude oil averaged $98 US per barrel in 2013, up from $94 US in 2012.

Crude oil production is expected to increase further in 2014, supported by increased pipeline and railway flows within North America. However, despite higher production, strengthening global economic growth, ongoing political turbulence and high recovery costs are expected to keep oil prices at relatively high levels over the forecast period. Oil prices are forecast to average $97 US per barrel in 2014, with private-sector forecasts ranging from $95 US to $104 US per barrel.

The Canadian Dollar

Recently, the Canadian dollar has traded at around 90 cents US, its lowest level in over four years. The decline in the Canadian dollar reflects a number of factors, including improved growth prospects in the United States and a reduced “safe-haven effect” that boosted the Canadian dollar following the global financial crisis.

The lower dollar will help improve Ontario business competitiveness and encourage stronger export growth. However, the dollar remains well above the average exchange rate of 79 cents US over the 2000 to 2009 period. Additionally, the lower value of the Canadian dollar will raise prices for imported goods, affecting both businesses and consumers.

There are divergent views about the future direction of the Canada–U.S. exchange rate. Some private-sector forecasters expect further depreciation in the coming quarters, while others expect the dollar to strengthen. Forecasts range from 88 cents US to 92 cents US for 2014. The dollar is forecast to strengthen modestly over the outlook, rising from 90 cents US in 2014 to 93 cents US in 2017.

Financial Markets

The Bank of Canada, like other central banks around the world, has continued to maintain accommodative policies to support economic growth. The Bank has maintained the target for the overnight rate at the low level of 1.0 per cent since September 2010. In recent statements the Bank of Canada has expressed concern about the softness in consumer price inflation and the weakness in Canada’s business investment and trade balance. As a result, economists believe that the Bank will delay any increase to policy interest rates. Private-sector forecasters expect the three-month Canadian Treasury-bill yield to average 1.0 per cent this year, little changed from 2013, and then rise to 1.3 per cent in 2015 and reach 3.3 per cent in 2017. 

Long-term interest rates began to rise in May 2013 as global financial markets anticipated the gradual easing of the Federal Reserve’s monetary stimulus. The gradual reduction or “tapering” of the Federal Reserve’s purchases of U.S. treasury bonds and mortgage-backed securities began in January and is expected to continue through 2014. However, long-term bond yields have declined since December, as concern over emerging market economies increased demand for safe assets. In the current environment, long-term interest rates are likely to remain volatile. The yield on 10-year Government of Canada bonds is expected to rise gradually from an average of 2.3 per cent in 2013 to 2.8 per cent in 2014 and 3.5 per cent in 2015, and to reach 4.3 per cent by 2017.

Forecasts for key external factors are summarized in the table below. These are used as the basis for the Ministry of Finance’s forecast for Ontario’s economic growth.

TABLE 2.6 Outlook for External Factors
  2011 2012  2013 2014p 2015p 2016p 2017p
World Real GDP Growth
(Per Cent)
3.9 3.2 3.0e 3.6 3.9 4.0 3.9
U.S. Real GDP Growth
(Per Cent)
1.8 2.8 1.9 2.7 3.0 2.9 2.8
West Texas Intermediate
Crude Oil ($US/bbl.)
95 94 98 97 96 96 98
Canadian Dollar (Cents US) 101.1 100.1 97.1 90.0 91.0 92.0 93.0
Three-Month Treasury Bill Rate1
(Per Cent)
0.9 0.9 1.0 1.0 1.3 2.4 3.3
10-Year Government Bond Rate1
(Per Cent)
2.8 1.9 2.3 2.8 3.5 3.9 4.3
e = estimate.
p = Ontario Ministry of Finance planning projection based on external sources.
1 Government of Canada interest rates.
Sources: IMF World Economic Outlook (April 2014), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (March and April 2014), U.S. Energy Information Administration, Bank of Canada, Ontario Ministry of Finance Survey of Forecasts (April 2014) and Ontario Ministry of Finance.

Table 2.7 provides current estimates of the impact of sustained changes in key external factors on the growth of Ontario’s real GDP, assuming other external factors are unchanged. The relatively wide range for the impacts reflects uncertainty regarding how the economy would be expected to respond to these changes in external conditions.

TABLE 2.7 Impacts of Sustained Changes in Key External Factors on Ontario's Real GDP Growth
(Percentage Point Change)
  First Year Second Year
Canadian Dollar Depreciates by
Five Cents US
+0.1 to +0.8 +0.2 to +0.9
Crude Oil Prices Increase by
$10 US per Barrel
–0.1 to –0.3 –0.1 to –0.3
U.S. Real GDP Growth Increases by
One Percentage Point
+0.3 to +0.7 +0.4 to +0.8
Canadian Interest Rates Increase by
One Percentage Point
–0.1 to –0.5 –0.2 to –0.6
Source: Ontario Ministry of Finance.

Outlook for Ontario’s Economic Growth

The Ministry of Finance is forecasting steady, continued growth in Ontario’s economy, with real GDP increasing by 2.1 per cent in 2014, 2.5 per cent in 2015 and 2016, and 2.6 per cent in 2017. This compares to a forecast for real GDP growth at the time of the 2013 Budget of 2.3 per cent in 2014 and 2.4 per cent in both 2015 and 2016.

While a forecast for sustained moderate growth is a reasonable basis for planning, there is always the potential for stronger growth as well as a risk that the economy could underperform. On the downside, renewed global financial-market volatility could pose a risk to the world economy. On the upside, the U.S. economy could be stronger than expected, boosting Ontario’s exports and growth. A key domestic risk for the Ontario and Canadian economies is the potential for a significant housing market adjustment.

The choices and investments made in this Budget will position Ontario to take full advantage of its strengths as the global economy returns to normal growth in the short term, and as the economy undergoes fundamental shifts over the medium and long term. Attracting global companies and investing in Ontarians’ health and education will all position the Province to take advantage of these shifts in the economy.

Economic growth prior to the 2008–09 global recession was dominated by strong gains in household and government spending. Net trade was a significant drag on growth, largely as a result of the appreciation in the Canadian dollar over this period. Over the 2013 to 2017 period, growth is expected to be relatively balanced, with gains in household spending, business investment and net trade all supporting overall GDP growth.

Over the last two years, inflation has been trending lower in many advanced economies. In Ontario, the Consumer Price Index (CPI) increased by 1.0 per cent in 2013, the lowest pace of inflation in four years. The modest pace of Ontario consumer price inflation reflected relatively moderate food price increases as well as intense competition in the retail sector. Stronger economic growth and the lower Canadian dollar — which will increase prices for imported goods — are expected to result in a moderate increase in consumer price inflation. Consumer price inflation is expected to be 1.5 per cent in 2014, 1.9 per cent in 2015, and 2.0 per cent in 2016 and 2017.

Ontario’s labour market will remain resilient, with steady employment gains expected to continue over the forecast period. Employment is forecast to grow by 1.1 per cent or 73,000 net new jobs in 2014, and increase by an average of 1.5 per cent per year over the 2015 to 2017 period. By 2017, Ontario will have created over one million net new jobs compared to 2003. The steady gains in employment will lower Ontario’s unemployment rate from 7.5 per cent in 2013 to 6.2 per cent in 2017.

Household income is forecast to increase by 3.3 per cent in 2014 and strengthen to an average gain of 4.6 per cent annually over the 2015 to 2017 period. Real household spending is expected to increase by 2.1 per cent in 2014 and by an average of 2.5 per cent per year over the 2015 to 2017 period, in line with the growth in real income.

There were 61,100 housing starts in Ontario in 2013, down from 76,700 starts in 2012. Existing home sales edged up 0.5 per cent in 2013, while the average price of an Ontario resale home increased by 4.7 per cent.

Home building is an important industry in Ontario, accounting for about 120,000 jobs in 2013. Demand for new homes in Ontario will continue to be supported by steady growth in the population. Housing starts are expected to average 63,500 units per year between 2014 and 2017. Ontario home resales are expected to grow by an average of 0.8 per cent per year between 2014 and 2017. A more balanced market for resale homes is expected to contribute to relatively stable home prices over the next several years.

There are concerns that current housing prices in Ontario and Canada are elevated relative to both household incomes and rents. In the early 1990s, average house prices fell by almost 15 per cent, following a near tripling in prices in the late 1980s. The correction in housing prices in the early 1990s was associated with both high mortgage rates of over 13 per cent in 1990 and a rise in the unemployment rate (from a low of 5.0 per cent in 1988 to 9.5 per cent in 1991).

In the current outlook, interest rates are expected to remain relatively low, while the unemployment rate is expected to continue improving steadily. As well, despite moderately higher interest rates, mortgage carrying costs as a share of household income are expected to remain below 30 per cent, significantly lower than the record high of nearly 38 per cent reached in the early 1990s. As a result, Ontario housing prices are expected to remain relatively stable over the outlook period.

Canada’s household debt-to-income ratio was 164.0 per cent in the fourth quarter of 2013. Although the rate of increase has moderated, the level of household debt in Canada remains elevated. Debt service costs as a per cent of household disposable income is a measure of the affordability of interest payments on debt. This ratio declined from a high of 9.2 per cent in the fourth quarter of 2007 to 7.1 per cent in the fourth quarter of 2013 ― its lowest level on record and a reflection of low interest rates. Although interest rates are expected to rise modestly, debt service costs are expected to remain affordable as incomes continue to rise.

Business investment contributes to Ontario’s economic growth, jobs and prosperity. Ontario’s Tax Plan for Jobs and Growth including the Harmonized Sales Tax — has improved the competitive landscape of the province and provided incentives for business investment. However, business investment in Ontario has tended to lag the pace of investment in the United States. Job creation and economic growth could be even stronger if companies took advantage of the competitive business climate and increased investment. Businesses are expected to boost investment in machinery and equipment (M&E) by 3.5 per cent this year and by an average of 5.7 per cent annually over the 2015 to 2017 period. However, Ontario’s pace of M&E investment growth is expected to continue to lag the United States over the 2014 to 2017 period.

The composition and destination of Ontario’s exports have evolved and diversified, in part a result of the government’s trade policy initiatives. This evolution in Ontario’s exports has included strong gains in both exports to other provinces as well as exports of high value-added services. This benefits Ontario exporters, which can grow and prosper in other key markets, while becoming less reliant on any single trading partner.

From 2003 to 2013, Ontario’s total exports to other Canadian provinces increased by over 36 per cent, while exports to other countries increased by about 3 per cent. Over the same period, exports of services — including financial, professional and information and cultural services — increased by about 49 per cent, the majority of which were destined for other provinces. Exports of goods were essentially unchanged over this period.

The diversification of exports that is underway is beginning from a base that is dominated by goods exports to the United States. Ontario exports to its largest trading partner, the United States, have declined by 16 per cent over the last 10 years. As a result, the share of Ontario’s goods exports destined for the United States has fallen from 91.5 per cent in 2003 to 78.4 per cent in 2013. Over the same period, the share of Ontario exports to the European Union and other countries, including fast-growing emerging economies, has more than doubled.

The shift in Ontario’s exports is expected to continue, supported by a growing world economy and new trade agreements. For example, the proposed trade agreement with the European Union will make Ontario companies more competitive in European markets — an economy with 500 million consumers and GDP of close to $17 trillion. A resurgent U.S. economy and, in particular, a rebound in U.S. consumer demand, including motor vehicle sales, will also support stronger growth in Ontario’s exports. Exports to fast-growing emerging market economies, such as China and India, are also expected to accelerate. Importantly, an increasing share of Ontario exports are integrated into global supply chains, which will help support export growth over the forecast period. Ontario’s export diversification will allow companies to reach new markets, boosting economic growth and job creation. Overall, Ontario’s real exports are projected to increase by an average of 3.5 per cent annually between 2014 and 2017, outpacing a 2.5 per cent increase in imports.

Details of the Ontario Economic Outlook

The following table provides details of the Ministry of Finance’s economic outlook for 2014 to 2017.

TABLE 2.8 The Ontario Economy, 2012 to 2017
(Per Cent Change)
  Actual Projection
  2012  2013 2014 2015 2016 2017
Real Gross Domestic Product 1.3 1.3 2.1 2.5 2.5 2.6
Household Consumption 1.4 1.8 2.1 2.2 2.6 2.7
Residential Construction 4.7 (2.2) 0.0 0.9 1.2 2.0
Non-residential Construction (1.6) (8.0) 2.0 5.6 3.0 3.4
Machinery and Equipment 2.0 (3.8) 3.5 6.0 5.8 5.4
Exports 1.7 1.1 3.2 4.1 3.4 3.3
Imports 2.0 (0.6) 2.0 2.7 2.7 2.5
Nominal Gross Domestic Product 3.0 2.7 3.5 4.4 4.4 4.6
Other Economic Indicators            
Retail Sales 1.6 1.8 4.1 4.0 4.4 4.4
Housing Starts (000s) 76.7 61.1 58.0 60.0 67.0 69.0
Home Resales (2.1) 0.5 1.0 (0.5) 0.5 2.1
Primary Household Income 3.4 2.9 3.3 4.4 4.7 4.7
Compensation of Employees 3.2 2.6 3.5 4.6 4.6 4.7
Net Operating Surplus — Corporations (1.0) (1.3) 4.4 4.2 5.0 4.7
Consumer Price Index 1.4 1.0 1.5 1.9 2.0 2.0
Employment 0.8 1.4 1.1 1.5 1.6 1.4
Job Creation (000s) 52 96 73 107 110 102
Unemployment Rate (Per Cent) 7.8 7.5 7.3 6.9 6.5 6.2
Key External Variables            
U.S. Real Gross Domestic Product 2.8 1.9 2.7 3.0 2.9 2.8
WTI Crude Oil ($ US per Barrel) 94 98 97 96 96 98
Canadian Dollar (Cents US) 100.0 97.1 90.0 91.0 92.0 93.0
3-month Treasury Bill Rate1 0.9 1.0 1.0 1.3 2.4 3.3
10-year Government Bond Rate1 1.9 2.3 2.8 3.5 3.9 4.3
1 Government of Canada interest rates (per cent).
Sources: Statistics Canada, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, Bank of Canada, U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (March and April 2014), U.S. Energy Information Administration and Ontario Ministry of Finance.

Private-Sector Forecasts

The Ministry of Finance consults with private-sector economists and tracks their forecasts to inform the government’s planning assumptions. In the process of preparing the 2014 Ontario Budget, the Minister of Finance met with private-sector economists to discuss their views on the economy. Additionally, members of the Ontario Economic Forecast Council, established under the Fiscal Transparency and Accountability Act, 2004, reviewed the Ministry of Finance’s economic assumptions in February 2014. All council members found the assumptions to be reasonable.

Private-sector economists are projecting continued growth for Ontario over the forecast horizon. On average, private-sector economists are calling for growth of 2.2 per cent in 2014, 2.6 per cent in both 2015 and 2016, and 2.7 per cent in 2017. For prudent fiscal planning, the Ministry of Finance’s real GDP growth projections are slightly below the average private-sector forecast.

TABLE 2.9 Private-Sector Forecasts for Ontario Real GDP Growth
(Per Cent)
  2014 2015 2016 2017
BMO Capital Markets (March) 2.3 2.5
Central 1 Credit Union (March) 1.9 2.4 2.7 3.0
Centre for Spatial Economics (January) 2.2 2.7 2.5 2.9
CIBC World Markets (April) 2.0 2.3 2.2
Conference Board of Canada (February) 2.1 2.4 2.5 2.4
Desjardins Group (March/January) 2.1 2.6 2.5 2.5
IHS Global Insight (January) 2.3 2.7 2.7 2.6
Laurentian Bank Securities (January) 2.3 2.5
National Bank (January) 2.1 2.5
RBC Financial Group (March) 2.5 2.9
Scotiabank Group (March) 1.9 2.2
TD Bank Financial Group (April) 2.2 2.7
University of Toronto (January) 2.2 3.0 2.9 2.9
Private-Sector Survey Average 2.2 2.6 2.6 2.7
Ontario's Planning Assumption 2.1 2.5 2.5 2.6
Sources: Ontario Ministry of Finance Survey of Forecasts (April 2014) and Ontario Ministry of Finance.

Change in the Economic Outlook

Ontario real GDP growth in 2013 was softer than expected at the time of the 2013 Budget, reflecting weaker business investment and exports than forecast. This was a result of a number of factors including uneven U.S. growth, higher-than-projected oil prices and increases in long-term interest rates.

On average, economists have revised down their expectations for Ontario growth in 2014. The current private-sector average outlook for Ontario real GDP growth is 2.2 per cent in 2014, down from 2.4 per cent projected at the time of the 2013 Budget. However, private-sector forecasts for 2015 to 2017 have been revised higher compared to forecasts at the time of the 2013 Budget.

Comparison to the 2013 Budget

Key changes since the 2013 Budget include:

  • Lower real GDP growth in 2013 and 2014, followed by stronger growth in 2015 and 2016;
  • More moderate CPI inflation from 2013 through 2015;
  • Stronger-than-expected employment growth in 2013, followed by slightly weaker growth in 2014; and
  • Lower nominal GDP growth in 2013 and 2014, followed by stronger growth in 2015 and 2016.
TABLE 2.10 Changes in Ministry of Finance
Key Economic Forecast Assumptions:
2013 Budget Compared to 2014 Budget
(Per Cent Change)
  2013 2014p 2015p 2016p
  2013
Budget
Actual 2013
Budget
2014
Budget
2013
Budget
2014
Budget
2013
Budget
2014
Budget
Real Gross Domestic Product 1.5 1.3 2.3 2.1 2.4 2.5 2.4 2.5
Nominal Gross Domestic Product 3.0 2.7 4.1 3.5 4.2 4.4 4.2 4.4
Retail Sales 2.5 1.8 3.8 4.1 3.8 4.0 3.8 4.4
Housing Starts (000s) 61.0 61.1 60.0 58.0 65.0 60.0 68.0 67.0
Primary Household Income 2.8 2.9 3.9 3.3 4.2 4.4 4.5 4.7
Compensation of Employees 2.8 2.6 3.7 3.5 4.3 4.6 4.3 4.6
Net Operating Surplus — Corporations 3.3 (1.3) 5.0 4.4 4.0 4.2 4.0 5.0
Employment 1.2 1.4 1.4 1.1 1.5 1.5 1.5 1.6
Job Creation (000s) 83 96 98 73 107 107 107 110
Consumer Price Index 1.5 1.0 2.0 1.5 2.0 1.9 2.0 2.0
Key External Variables                
U.S. Real Gross Domestic Product 2.1 1.9 2.7 2.7 3.1 3.0 2.9 2.9
WTI Crude Oil
($ US per Barrel)
94 98 98 97 99 96 100 96
Canadian Dollar (Cents US) 98.0 97.1 99.5 90.0 100.0 91.0 99.5 92.0
3-month Treasury Bill Rate1 (Per Cent) 1.0 1.0 1.2 1.0 1.9 1.3 3.1 2.4
10-year Government Bond Rate1 (Per Cent) 2.0 2.3 2.6 2.8 3.2 3.5 3.9 3.9
p = Ontario Ministry of Finance planning projection.
1 Government of Canada interest rates.
Sources: Statistics Canada, Canada Mortgage and Housing Corporation, Bank of Canada, U.S. Energy Information Administration, U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (March and April 2014) and Ontario Ministry of Finance.

1 Based on information available to April 8, 2014.

2 Organisation for Economic Co-operation and Development.

Chart Descriptions

Chart 2.3: Ontario Emerging Stronger from 2008–09 Recession

Chart shows Ontario real GDP reached its pre-recession peak at $602.0 billion in 2008Q2 and fell to the recessionary low of $573.3 billion in 2009Q2. The current level of real GDP is $632.6 billion in 2013Q4, 10.3 per cent higher than the recessionary low.

Ontario exports reached its pre-recession peak at $337.1 billion in 2008Q3 and fell to the recessionary low of $274.9 billion in 2009Q2. The current level of Ontario exports is $353.8 billion in 2013Q4, 28.7 per cent higher than the recessionary low.

Ontario employment reached its pre-recession peak at 6,708,600 in September 2008 and fell to the recessionary low of 6,442,800 in June 2009. The current employment level is 6,902,300 in March 2014, 7.1 per cent higher than the recessionary low.

Household income in Ontario reached its pre-recession peak at $414.3 billion in 2008Q2 and fell to the recessionary low of $410.3 billion in 2009Q2. The current level of household income is $476.2 billion in 2013Q4, 16.1 per cent higher than the recessionary low.

Household consumption in Ontario reached its pre-recession peak at $342.3 billion in 2008Q3 and fell to the recessionary low of $335.6 billion in 2009Q2. The current level of household consumption is $394.8 billion in 2013Q4, 17.6 per cent higher than the recessionary low.

Ontario policies supporting the recovery include competitive taxes, infrastructure investments, business and regional support, skills training, Youth Jobs Strategy and Poverty Reduction Strategy.

Return to Chart 2.3

Chart 2.4: Ontario Real GDP since 2008–09 Recession

Line chart shows the level of Ontario real GDP between the first quarter of 2008 and the fourth quarter of 2013. Ontario real GDP reached its pre-recession peak of $602.0 billion in the second quarter of 2008 and declined to its recessionary low of $573.3 billion in the second quarter of 2009. As of the fourth quarter of 2013, real GDP had risen to $632.6 billion.

Return to Chart 2.4

Chart 2.5: Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Jobs

Bar chart shows Ontario employment gains since June 2009. Total employment increased by 460,000 since June 2009. Full-time employment increased by 463,000, while part-time employment declined by 4,000. Private-sector employment increased by 330,000, while public-sector employment increased by 75,000 and self-employment rose by 55,000. Employment in above-average wage industries increased by 319,000, while employment in below-average industries increased by 140,000.

Return to Chart 2.5

Chart 2.6: Ontario Job Recovery Ahead of U.S. and OECD Average

Line chart compares the percentage change in employment relative to its pre-recession peak in Ontario, the average for the member countries of the Organisation for Economic Co-operation and Development (OECD) and the United States between the first quarter of 2008 and the first quarter of 2014 (for Ontario and the U.S.) and the third quarter of 2013 for the OECD.

As of the first quarter of 2014, employment in Ontario has recovered to well above its pre-recession peak while the United States is below its pre-recession peak. As of the third quarter of 2013, the OECD is slightly higher than its pre-recession peak.

Return to Chart 2.6

Chart 2.7: Ontario Job Recovery Stronger than Other Jurisdictions

Bar chart shows the per cent change in Ontario’s employment since June 2009 compared to Great Lake States, the OECD average, the U.S. average and the rest of Canada. Ontario’s employment has increased by 7.1 per cent since June 2009.

Illinois was up 1.0 per cent, New York was up 1.3 per cent, Ohio was up 1.4 per cent, Wisconsin was up 1.7 per cent, Pennsylvania was up 2.3 per cent, Michigan was up 3.9 per cent, Indiana was up 4.7 per cent, Minnesota was up 5.3 per cent, the OECD average was up 3.5 per cent, the U.S. average was up 5.3 per cent and the rest of Canada was up 6.0 per cent.

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Chart 2.8: Global Economic Growth to Improve

Bar chart shows real GDP growth for the global economy, advanced economies, and emerging and developing economies from 2011 to 2015.

Real GDP growth for the global economy was 3.9 per cent in 2011, 3.2 per cent in 2012 and 3.0 per cent in 2013. According to the International Monetary Fund (IMF), growth is projected to be 3.6 per cent in 2014 and 3.9 per cent in 2015.

Real GDP growth for advanced economies was 1.7 per cent in 2011, 1.4 per cent in 2012 and 1.3 per cent in 2013. According to the IMF, growth is projected to be 2.2 per cent in 2014 and 2.3 per cent in 2015.

Real GDP growth for emerging and developing economies was 6.3 per cent in 2011, 5.0 per cent in 2012 and 4.7 per cent in 2013. According to the IMF, growth is projected to be 4.9 per cent in 2014 and 5.3 per cent in 2015.

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Chart 2.9: Strengthening U.S. Recovery

Bar chart shows U.S. real GDP growth from 2009 to 2017. U.S. real GDP declined 2.8 per cent in 2009 and grew by 2.5 per cent in 2010, 1.8 per cent in 2011, 2.8 per cent in 2012 and 1.9 per cent in 2013. According to Blue Chip Economic Indicators from March and April 2014, U.S. real GDP is projected to grow by 2.7 per cent in 2014, 3.0 per cent in 2015, 2.9 per cent in 2016 and 2.8 per cent in 2017.

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Chart 2.10: Oil Prices to Remain High

Line chart shows the price of WTI crude oil from 2000 to 2017. The price of West Texas Intermediate (WTI) crude oil rose from $30 US per barrel in 2000 to $100 US per barrel in 2008, declined to $62 US per barrel in 2009 and increased to $98 US per barrel in 2013. The Ontario Ministry of Finance projects oil prices will decline to $97 US per barrel in 2014, average $96 US per barrel in 2015 and 2016, and then increase to $98 US per barrel in 2017.

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Chart 2.11: Canadian Dollar to Remain Below Parity

Line chart showing the Canadian exchange rate from 1990 to 2017 and the low and high private-sector projections for 2014 to 2017. The Canadian dollar fell from 87 cents US in 1991 to a low of 64 cents US in 2002. It trended up over the 2003 to 2011 period, reaching 101 cents US in 2011. In 2013, the dollar was 97 cents US. The Ministry of Finance projects the Canadian dollar will rise from 90 cents US in 2014 to 93 cents US in 2017. Private-sector projections range from a high of 98 cents US to a low of 89 cents US in 2017.

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Chart 2.12: Interest Rates to Rise Gradually

Line chart showing the three-month Government of Canada Treasury bill rate and the 10-year Government of Canada bond yield from 1990 to 2017. The three-month Treasury bill rate has declined from close to 13 per cent in 1990 to 1.0 per cent in 2013. It is expected to rise gradually to 3.3 per cent in 2017. The 10-year Government of Canada bond yield has declined from over 10 per cent in 1990 to a low of 1.9 per cent in 2012. The 10-year bond yield moved up to 2.3 per cent in 2013 and is expected to rise gradually to 4.3 per cent in 2017.

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Chart 2.13: Inflation Expected to Remain Moderate

Bar chart shows percentage change in the Ontario Consumer Price Index (CPI) from 2010 to 2017. Ontario CPI increased by 2.5 per cent in 2010, 3.1 per cent in 2011, 1.4 per cent in 2012 and 1.0 per cent in 2013. The Ontario Ministry of Finance projects CPI inflation to be 1.5 per cent in 2014, 1.9 per cent in 2015 and 2.0 per cent in 2016 and 2017.

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Chart 2.14: Employment Expected to Rise over the Medium Term

Bar chart shows the annual level of Ontario employment from 2009 to 2017. Ontario employment rose from 6.5 million in 2009 to 6.9 million in 2013. The Ontario Ministry of Finance projects employment will increase to 7.3 million in 2017.

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Chart 2.15: Ontario Housing Prices Expected to Stabilize

Line chart showing average house prices from 1980 to 2017. Average house prices have trended steadily upward from $155,200 in 1995 to $402,500 in 2013.  In 2014, the average resale price is expected to increase to $408,600 and remain close to this level over the rest of the forecast period.

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Chart 2.16: Housing in Ontario to Remain Affordable

Line chart shows the mortgage carrying cost as a share of disposable income per household in Ontario from 1981 to 2017. The line increased to a high of over 37 per cent in 1990 and then declined to a low of 19 per cent in 1998. It has since trended higher, reaching almost 27 per cent in 2013. The Ontario Ministry of Finance projects the share to remain close to 27 per cent over the 2014 to 2017 period.

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Chart 2.17: Although Elevated, Canadian Household Debt Remains Affordable

Line chart shows household debt and debt service costs as a percentage of household disposable income in Canada from the first quarter of 2000 to the fourth quarter of 2013.

The line for household debt as a percentage of household disposable income increased steadily from 108 per cent in the first quarter of 2000 to 164 per cent in the fourth quarter of 2013. The line for the debt service costs as a percentage of household disposable income declined from 8.5 per cent in the first quarter of 2000 to 7.5 per cent in the second quarter of 2002, stayed at this level until the end of 2005, increased to 9.2 per cent in the fourth quarter of 2007 and declined to 7.1 per cent in the fourth quarter of 2013.

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Chart 2.18: Ontario Business Machinery and Equipment Investment Lags the United States

The line chart shows business machinery and equipment investment in $2007 billions for Ontario and $2009 billions for the United States from 2007 to 2017. Real machinery and equipment investment in both Ontario and the U.S. declined during the 2008–09 recession. Since the recession, machinery and equipment investment has been rising in both jurisdictions. However, machinery and equipment investment has been rising faster in the U.S. than in Ontario since 2009. Over the forecast period, Ontario’s pace of machinery and equipment investment growth is expected to continue to lag the U.S.

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Chart 2.19: Exports to Other Provinces and Service Exports Have Grown Strongly

The first two bars show that Ontario’s total exports to other provinces increased to $125.9 billion in 2013 from $92.3 billion in 2003, an increase of $33.6 billion or 36 per cent. Over the same period, exports to other countries increased from $217.8 billion in 2003 to $224.1 billion in 2013.

The last two bars show that Ontario’s exports of services increased to $121.1 billion in 2013 from $81.5 billion in 2003, up $39.6 billion or 49 per cent. Exports of goods increased to $228.9 billion in 2013 from $228.6 billion in 2003.

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Chart 2.20: Ontario Goods Exports Expanding to New Markets

The bar chart shows that the share of Ontario’s goods exports to the United States declined from 91.5 per cent in 2003 to 78.4 per cent in 2013, while the share of Ontario’s goods exports to the European Union increased from 3.8 per cent in 2003 to 9.5 per cent in 2013. The share of Ontario’s goods exports to the rest of the world increased to 12.1 per cent in 2013 from 4.7 per cent in 2003.

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Chart 2.21: Private-Sector Outlook for Growth Weaker in 2014 but Stronger in 2015 to 2017

The bar chart shows the average private-sector projection for Ontario’s real GDP growth at the time of the 2013 Budget and 2014 Budget.

The average private-sector forecast for Ontario real GDP growth for 2013 was 1.6 per cent in the 2013 Budget and 1.3 per cent currently.

The average private-sector forecast for Ontario real GDP growth for 2014 was 2.4 per cent in the 2013 Budget and 2.2 per cent currently.

The average private-sector forecast for Ontario real GDP growth for 2015 and 2016 was 2.5 per cent in the 2013 Budget and 2.6 per cent currently.

The average private-sector forecast for Ontario real GDP growth for 2017 was 2.3 per cent in the 2013 Budget and 2.7 per cent currently.

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