2015 Ontario Economic Outlook and Fiscal Review
Chapter III: Economic and Fiscal Outlook

Section A: Ontario's Economic Outlook

Ontario’s economy continues to grow in an increasingly competitive global economic environment. Ontario has become a growth leader in Canada and private-sector economists expect that to continue over the next two years. Lower oil prices, a more competitive Canadian dollar and solid U.S. economic growth present opportunities for further growth in Ontario. While growth in 2015 is lower than originally projected in the 2015 Budget, it remains on track for 2016 to 2018.

Outlook for Ontario Economic Growth

As part of developing Ontario’s fiscal plan, real gross domestic product (GDP) growth is forecast to be 1.9 per cent in 2015, and average 2.2 per cent annually over the 2016 to 2018 period. For prudent fiscal planning, real GDP growth projections are slightly below the average private-sector forecast.

TABLE 3.1 Ontario Economic Outlook
(Per Cent)
  2012 2013 2014 2015p 2016p 2017p 2018p
Real GDP Growth 1.3 1.3 2.7 1.9 2.2 2.3 2.1
Nominal GDP Growth 3.1 1.9 4.1 2.9 4.2 4.4 4.2
Employment Growth 0.7 1.8 0.8 0.7 1.1 1.3 1.1
CPI Inflation 1.4 1.0 2.4 1.3 2.0 2.0 2.0
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.

The global economic environment, notably strengthening U.S. growth, low oil prices and a competitive Canadian dollar, is conducive to continued Ontario growth. Rising sales in some of Ontario’s export-oriented industries and a rebound in interprovincial exports provide an increasingly compelling case for increased investment, driving economic growth over the forecast period. Household spending is expected to rise moderately, in line with income gains.

Labour Market Gains Continue in Ontario

Ontario’s economy has created 559,600 jobs since the recessionary low in June 2009, primarily in the private sector. In addition, the majority of new jobs were full-time positions and in industries that paid above-average wages. Over this period, the unemployment rate declined from 9.6 per cent to 6.8 per cent in October 2015. Ontario’s unemployment rate has also been reduced below the national average.

Employment in Ontario is expected to continue to grow, increasing by 0.7 per cent in 2015, slightly lower than growth of 0.8 per cent in 2014. Employment growth is projected to pick up in the medium term, growing by 1.2 per cent annually, on average, from 2016 to 2018. Ontario’s unemployment rate is expected to improve to 6.7 per cent this year, down from 7.3 per cent in 2014. The unemployment rate is projected to steadily decline to 6.6 per cent in 2016, and 6.3 per cent in 2017 and 2018.

Global Economic Developments and Outlook

Forecasts for key external factors are summarized in Table 3.2. These are used as the basis for the Ministry of Finance’s forecast of Ontario’s economic growth.

TABLE 3.2 Outlook for External Factors
  2012 2013 2014 2015p 2016p 2017p 2018p
World Real GDP Growth (Per Cent) 3.4 3.3 3.4 3.1 3.6 3.8 3.9
U.S. Real GDP Growth (Per Cent) 2.2 1.5 2.4 2.4 2.6 2.5 2.4
West Texas Intermediate Crude Oil ($US/bbl.) 94 98 93 50 55 63 68
Canadian Dollar (Cents US) 100.1 97.1 90.5 78.5 75.5 78.0 82.0
Three-Month Treasury Bill Rate1 (Per Cent) 0.9 1.0 0.9 0.5 0.6 1.5 2.7
10-Year Government Bond Rate1 (Per Cent) 1.9 2.3 2.2 1.5 2.0 3.1 3.8
p = Ontario Ministry of Finance planning projection based on external sources.
1 Government of Canada interest rates.
Sources: International Monetary Fund World Economic Outlook (October 2015), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (October and November 2015), U.S. Energy Information Administration, Bank of Canada and Ontario Ministry of Finance Survey of Forecasters (November 2015).

Risks to the Economic Outlook

Table 3.3 provides current estimates of the impact of sustained changes in key external factors on Ontario’s real GDP growth, assuming other external factors remain 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 3.3 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 +0.7 +0.2 to +0.8
Crude Oil Prices Decrease 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 +0.2 to +0.6 +0.3 to +0.7
Canadian Interest Rates Increase by One Percentage Point -0.1 to -0.5 -0.2 to -0.6
Source: Ontario Ministry of Finance.

The improvement in Ontario exports and investment due to solid U.S. growth and a weaker Canadian dollar has been slower to materialize than expected, but could intensify as business confidence rises alongside the supportive economic backdrop. In addition, sustained lower global oil prices could provide a greater-than-expected boost to the Ontario economy through lower costs for businesses and households.

Intense global competition and weak productivity growth could hamper Ontario’s export sector. Domestically, a potential housing market correction remains a risk, particularly given high levels of household debt.

Details of the Ontario Economic Outlook

Table 3.4 provides details of the Province’s economic outlook for 2015 to 2018.

TABLE 3.4 The Ontario Economy, 2013 to 2018
(Per Cent Change)
  Actual Projection
2013 2014 2015 2016 2017 2018
Real Gross Domestic Product 1.3 2.7 1.9 2.2 2.3 2.1
Household Consumption 2.0 2.5 2.7 2.4 2.3 1.6
Residential Construction (1.7) 0.4 5.1 1.6 1.9 2.2
Non-residential Construction (5.6) 1.6 2.1 1.6 5.2 3.1
Machinery and Equipment (22.2) 6.9 (0.5) 2.5 5.0 5.1
Exports 2.0 1.9 1.9 3.2 3.1 3.1
Imports (1.0) 1.1 2.0 2.0 2.1 2.2
Nominal Gross Domestic Product 1.9 4.1 2.9 4.2 4.4 4.2
Other Economic Indicators            
Retail Sales 2.3 5.0 4.4 4.5 3.7 3.4
Housing Starts (000s) 61.1 59.1 64.0 64.0 65.0 68.0
Home Resales 0.4 3.7 6.4 (2.0) 2.0 2.0
Primary Household Income 3.2 3.5 3.8 4.3 4.5 4.3
Compensation of Employees 3.3 3.4 3.6 4.3 4.4 4.6
Net Operating Surplus — Corporations (5.8) 12.7 (0.8) 5.8 5.7 5.7
Consumer Price Index 1.0 2.4 1.3 2.0 2.0 2.0
Employment 1.8 0.8 0.7 1.1 1.3 1.1
Job Creation (000s) 121 55 46 78 93 81
Unemployment Rate (Per Cent) 7.6 7.3 6.7 6.6 6.3 6.3
Key External Variables            
U.S. Real Gross Domestic Product 1.5 2.4 2.4 2.6 2.5 2.4
WTI Crude Oil ($ US per Barrel) 98 93 50 55 63 68
Canadian Dollar (Cents US) 97.1 90.5 78.5 75.5 78.0 82.0
3-month Treasury Bill Rate1 1.0 0.9 0.5 0.6 1.5 2.7
10-year Government Bond Rate1 2.3 2.2 1.5 2.0 3.1 3.8
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 (October and November 2015), U.S. Energy Information Administration and Ontario Ministry of Finance.

Private-Sector Forecasts

The government consults with private-sector economists and tracks their forecasts to inform the Province’s planning assumptions. Additionally, in the process of preparing the 2015 Ontario Economic Outlook and Fiscal Review, the Minister of Finance met with private-sector economists in October to discuss their views on the economy. All private-sector economists are projecting continued growth for Ontario over the forecast horizon. On average, they are projecting growth of 2.0 per cent in 2015, 2.3 per cent in 2016, 2.4 per cent in 2017, and 2.2 per cent in 2018. For prudent fiscal planning, the government’s real GDP growth projections are slightly below the average private-sector forecasts.

TABLE 3.5 Private-Sector Forecasts for Ontario Real GDP Growth
  2015 2016 2017 2018
BMO Capital Markets (October) 2.0 2.4
Central 1 Credit Union (October) 1.9 2.4 2.9
Centre for Spatial Economics (August) 1.9 1.7 2.1 2.1
CIBC World Markets (September) 1.9 2.4
Conference Board of Canada (November) 2.1 2.3 2.1 2.1
Desjardins Group (January/October) 1.9 2.3 1.9 1.6
IHS Global Insight (July) 2.1 2.7 2.5 2.5
Laurentian Bank Securities (September) 2.0 2.4 2.4
National Bank (October) 2.0 2.2
RBC Financial Group (September) 2.1 2.5
Scotiabank Group (November) 2.1 2.3 2.3
TD Bank Financial Group (October) 2.0 2.4 2.0
University of Toronto (October) 2.0 2.5 3.0 2.6
Private-Sector Survey Average 2.0 2.3 2.4 2.2
Ontario's Planning Assumption 1.9 2.2 2.3 2.1
Sources: Ontario Ministry of Finance Survey of Forecasters (November 2015) and Ontario Ministry of Finance.

Comparison to the 2015 Budget

The current private-sector average outlook for Ontario real GDP growth is 2.0 per cent in 2015, down from the 2.8 per cent projected at the time of the 2015 Budget. The softer outlook reflects weakness in the first quarter of the year, due in large part to temporary factors. The outlook for 2016 through 2018 is largely unchanged compared to the 2015 Budget.

Compared to the 2015 Budget, key forecast changes include:

  • Lower real and nominal GDP growth in 2015;
  • Slower employment growth in 2015; and
  • Weaker U.S. real GDP growth, lower oil prices and a lower Canadian dollar.
TABLE 3.6
Changes in Ministry of Finance Key Economic Forecast Assumptions: 2015 Budget Compared to 2015 Fall Economic Statement (FES)
(Per Cent Change)
  2015p 2016p 2017p
  2015 Budget 2015 FES 2015 Budget 2015 FES 2015 Budget 2015 FES
Real Gross Domestic Product 2.7 1.9 2.4 2.2 2.2 2.3
Nominal Gross Domestic Product 4.2 2.9 4.2 4.2 4.2 4.4
Retail Sales 4.2 4.4 4.2 4.5 4.0 3.7
Housing Starts (000s) 61.0 64.0 65.0 64.0 69.0 65.0
Primary Household Income 3.9 3.8 4.3 4.3 4.4 4.5
Compensation of Employees 4.0 3.6 4.3 4.3 4.4 4.4
Net Operating Surplus — Corporations 5.0 (0.8) 4.8 5.8 4.7 5.7
Employment 1.1 0.7 1.3 1.1 1.4 1.3
Job Creation (000s) 78 46 93 78 99 93
Consumer Price Index 1.2 1.3 2.0 2.0 2.0 2.0
Key External Variables            
U.S. Real Gross Domestic Product 3.1 2.4 2.9 2.6 2.7 2.5
WTI Crude Oil ($ US per Barrel) 55 50 70 55 79 63
Canadian Dollar (Cents US) 79.5 78.5 80.0 75.5 85.0 78.0
3-month Treasury Bill Rate1 (Per Cent) 0.6 0.5 1.1 0.6 2.5 1.5
10-year Government Bond Rate1 (Per Cent) 1.8 1.5 2.7 2.0 3.8 3.1
p = Ontario Ministry of Finance planning projection.
1 Government of Canada interest rates.
Sources: Blue Chip Economic Indicators (October and November 2015) and Ontario Ministry of Finance.

Chart 3.1: Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Industries

The bar chart shows Ontario employment gains since June 2009. Total employment increased by 560,000 since June 2009, with full-time employment up by 552,000, while part-time employment rose by 8,000. Private-sector employment increased by 427,000, while public-sector employment rose by 58,000 and self-employment rose by 75,000. Employment in above-average wage industries rose by 412,000 compared to a 148,000 employment increase in below-average wage industries.

Return to Chart 3.1

Chart 3.2: Private-Sector Outlook for Growth Weaker in 2015, but Largely Unchanged through 2016 to 2018

The bar chart shows the average private-sector projection for Ontario’s real GDP growth at the time of the 2015 Budget and 2015 Fall Economic Statement. The average private-sector forecast for Ontario real GDP growth for 2015 was 2.8 per cent in the 2015 Budget and is 2.0 per cent currently. The average private-sector forecast for Ontario real GDP growth for 2016 was 2.5 per cent in the 2015 Budget and is 2.3 per cent currently. The average private-sector forecast for Ontario real GDP growth for 2017 was 2.3 per cent in the 2015 Budget and is 2.4 per cent currently. The average private-sector forecast for Ontario real GDP growth for 2018 was 2.2 per cent in both the 2015 Budget and currently.

Return to Chart 3.2