Outlook for Ontario’s Economic Growth
Over the 2017–20 period, the Ministry of Finance is forecasting average annual growth of 2.2 per cent in Ontario’s real GDP. For prudent fiscal planning, these real GDP growth projections are slightly below the average of private-sector forecasts.
TABLE 3.1 Ontario’s Economic Outlook
|Real GDP Growth||2.7||2.9||2.6||2.8||2.1||2.0||2.0|
|Nominal GDP Growth||4.4||5.0||4.3||5.3||4.1||4.1||4.2|
Table 3.1 Footnotes:
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.
Ontario’s economy is expected to continue to grow at a solid pace. Growth is expected to be driven by an advancing global and U.S. economy, while the combination of low oil prices and a competitive Canadian dollar will continue to broaden economic growth in Ontario. By 2020, Ontario is expected to create over 300,000 net new jobs over those existing in 2016, which will help the unemployment rate remain low.
Over the forecast period, rising interest rates are expected to shift growth from interest-rate-sensitive sectors, such as household consumption and housing, which have led activity in recent years. Trade is expected to be an important contributor to growth, as Ontario’s exports are projected to rise on average by 1.8 per cent annually over the 2017–20 period. Solid demand prospects will also continue to encourage businesses to invest over the projection period, as firms adopt new technologies, produce more innovative goods and services, and expand into new trade markets.
External Economic Environment
Forecasts for key external factors are summarized in Table 3.2. These are used as the basis for the Ministry of Finance’s forecast for economic growth in the province.
TABLE 3.2 Outlook for External Factors
|World Real GDP Growth
|U.S. Real GDP Growth
|West Texas Intermediate (WTI)
Crude Oil ($US per Barrel)
|Canadian Dollar (Cents US)||90.5||78.2||75.4||77.5||81.0||81.1||81.1|
|Three-Month Treasury Bill Rate1 (Per Cent)||0.9||0.5||0.5||0.7||1.5||2.2||2.5|
|10-Year Government Bond Rate1 (Per Cent)||2.2||1.5||1.3||1.8||2.5||3.2||3.6|
Table 3.2 Footnotes:
p = Ontario Ministry of Finance planning projection based on external sources.
 Government of Canada interest rates.
Sources: IMF World Economic Outlook (October 2017), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (October 2017), U.S. Energy Information Administration, Bank of Canada, Ontario Ministry of Finance Survey of Forecasters (October 2017) and Ontario Ministry of Finance.
External factors are expected to support Ontario’s economic growth, but less so in the medium term. Global growth, including that of the province’s key trading partner, the United States, is expected to improve. However, interest rates, the Canadian dollar and oil prices are also projected to rise.
Ontario’s Housing Market
Ontario’s resale housing market advanced rapidly over the 2015–16 period and into early 2017, supported by low borrowing rates, rising employment, income gains and growth in the number of households. However, affordability of homes in Ontario eroded over this period as price gains outstripped incomes, fuelling mortgage debt accumulation.
Ontario’s Fair Housing Plan introduced a comprehensive package of measures to help more people find affordable homes, increase supply, protect buyers and renters, and bring stability to the real estate market.
Housing market activity has cooled following the introduction of the Fair Housing Plan. Since reaching a peak in March, the number of Ontario home resales and the average resale price moved lower over the next few months before stabilizing shortly thereafter. In September, Ontario home resales and the average resale price increased 2.5 per cent and 1.0 per cent, respectively, from the previous month. Looking ahead, housing market activity is expected to remain moderate, as rising interest rates, historically high valuations and mortgage debt temper healthy demand.
Risks to Ontario’s Economic Outlook
Although the global economy is expected to improve over the projection period, there are risks that could affect growth. Key external risks to Ontario’s outlook relate to uncertainty about U.S. economic policies, notably on trade, taxation and migration. Developments in these areas represent both opportunities and risks that could have broad repercussions on the Ontario economy. Modernized trade links with the United States and enhanced clarity on immigration policy could improve the outlook. Downside risks include overly restrictive changes to U.S. trade and immigration policy, and potential U.S. tax reforms. The government will continue to pursue international trade opportunities while defending Ontario’s interests. On October 19, the Province announced the Global Trade Strategy that sets out the government’s key priority areas to increase international trade performance over the next five years (see Chapter II: Creating Opportunities for Everyone for more details).
Domestically, high levels of household debt have left Ontario households more sensitive to rising interest rates. At the same time, the Ontario housing market is rebalancing after a period of sharp price appreciation. During this transition, there is a risk that faster-than-expected interest rate increases may lead to a more significant slowing in consumer spending and housing activity.
Global equity prices remain near record highs despite heightened geopolitical risks. This situation raises the likelihood of a significant market correction should risks materialize, which would dampen growth and confidence globally.
Table 3.3 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 of the estimated impacts reflects uncertainty regarding how the economy could 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)
|Item||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|
Table 3.3 Footnotes:
Source: Ontario Ministry of Finance.
Transforming Statistics to Support Policy Development
High-quality statistics are critical for supporting evidence-based decision-making and policy development, improving social outcomes, and fostering an innovative and dynamic business climate. Ontario is establishing an official statistics program for the Province, known as the Ontario Statistics Office. The office will publish trusted, official statistical information to government, businesses and the community, and gather relevant data that will underpin efforts to create jobs and grow the economy. As the next step, the Province proposes to modernize statistics legislation.
Details of the Ontario Economic Outlook
Table 3.4 provides details of the Ministry of Finance’s economic outlook for the 2017–20 period.
TABLE 3.4 The Ontario Economy, 2015 to 2020
(Per Cent Change)
|Real Gross Domestic Product||2.9||2.6||2.8||2.1||2.0||2.0|
|Machinery and Equipment||7.3||(7.8)||3.5||4.3||6.2||3.9|
|Nominal Gross Domestic Product||5.0||4.3||5.3||4.1||4.1||4.2|
|Primary Household Income||4.7||3.1||4.2||4.4||4.5||4.2|
|Compensation of Employees||4.6||3.4||4.3||4.7||4.8||4.4|
|Net Operating Surplus — Corporations||7.1||7.3||16.1||2.9||2.8||3.7|
|Other Economic Indicators - Retail Sales||5.5||7.1||6.2||3.8||3.6||3.5|
|Other Economic Indicators - Housing Starts (000s)||70.2||75.0||77.5||71.0||71.0||72.0|
|Other Economic Indicators - Home Resales||9.5||9.5||(8.1)||2.8||3.2||3.4|
|Other Economic Indicators - Home Resale Prices||7.8||15.4||7.4||5.4||5.2||5.0|
|Other Economic Indicators - Consumer Price Index||1.2||1.8||1.7||2.0||2.0||2.0|
|Other Economic Indicators - Employment||0.7||1.1||1.4||1.1||1.1||1.0|
|Other Economic Indicators - Job Creation (000s)||45||76||99||78||79||73|
|Other Economic Indicators - Unemployment Rate (Per Cent)||6.8||6.5||6.2||6.2||6.1||6.1|
|Key External Variables - U.S. Real Gross Domestic Product||2.9||1.5||2.2||2.4||2.1||2.1|
|Key External Variables - WTI Crude Oil ($ US per Barrel)||49||43||50||52||56||60|
|Key External Variables - Canadian Dollar (Cents US)||78.2||75.4||77.5||81.0||81.1||81.1|
|Key External Variables - Three-Month Treasury Bill Rate1||0.5||0.5||0.7||1.5||2.2||2.5|
|Key External Variables - 10-Year Government Bond Rate1||1.5||1.3||1.8||2.5||3.2||3.6|
Table 3.4 Footnotes:
 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 2017), U.S. Energy Information Administration and Ontario Ministry of Finance.
The Ministry of Finance regularly consults with private-sector economists and continually tracks their forecasts to inform the government’s planning assumptions. Ahead of the 2017 Ontario Economic Outlook and Fiscal Review, the Minister of Finance met with private-sector economists to discuss their views on the economy and ideas to encourage further growth.
Private-sector economists are projecting continued growth for Ontario over the forecast horizon. On average, they are calling for real GDP growth of 2.9 per cent in 2017, 2.2 per cent in 2018, and 2.1 per cent in 2019 and 2020. For prudent fiscal planning, the Ministry of Finance’s real GDP growth projections are slightly below the average private-sector forecasts.
TABLE 3.5 Private-Sector Forecasts for Ontario Real GDP Growth
|BMO Capital Markets (October)||3.0||2.3||2.0||–|
|Central 1 Credit Union (September)||3.3||2.6||2.4||2.3|
|Centre for Spatial Economics (October)||3.1||2.0||2.5||2.4|
|CIBC World Markets (September)||3.0||2.3||1.7||–|
|Conference Board of Canada (July)||2.6||2.1||1.9||1.9|
|Desjardins Group (October)||3.0||2.3||2.0||1.5|
|IHS Global Insight (July)||2.8||2.4||2.4||2.1|
|Laurentian Bank Securities (August)||2.8||2.2||2.0||–|
|National Bank of Canada (September)||2.8||2.6||–||–|
|RBC Financial Group (September)||2.9||2.2||–||–|
|Scotiabank Group (October)||3.1||2.2||1.7||–|
|TD Bank Financial Group (September)||3.0||1.8||1.7||–|
|University of Toronto (August)||2.5||2.1||2.3||2.3|
|Private-Sector Survey Average||2.9||2.2||2.1||2.1|
|Ontario’s Planning Assumption||2.8||2.1||2.0||2.0|
Table 3.5 Footnotes:
Source: Ontario Ministry of Finance Survey of Forecasters (October 24, 2017).
Comparison to the 2017 Budget
The current private-sector average outlook for Ontario real GDP growth is 2.9 per cent in 2017, up from 2.4 per cent projected at the time of the 2017 Budget. The improved outlook reflects relatively strong economic growth recorded in Ontario over the second half of 2016 and early 2017. In addition, the outlook over the 2017–20 period has moved slightly higher compared to the projections in the 2017 Budget.
Key changes since the 2017 Budget include:
- Higher real GDP growth in 2017, with slightly higher average growth over the outlook period;
- Higher nominal GDP growth in 2017; and
- Higher Canadian dollar and short-term interest rates over the outlook period.
TABLE 3.6 Changes in Ontario Ministry of Finance Key Economic Forecast Assumptions: 2017 Budget Compared with
2017 Fall Economic Statement (FES)
(Per Cent Change)
|Real Gross Domestic Product||2.3||2.8||2.1||2.1||2.0||2.0||1.7||2.0|
|Nominal Gross Domestic Product||4.3||5.3||4.1||4.1||4.2||4.1||3.9||4.2|
|Housing Starts (000s)||72.0||77.5||68.5||71.0||71.0||71.0||72.0||72.0|
|Primary Household Income||3.9||4.2||4.0||4.4||4.1||4.5||3.9||4.2|
|Compensation of Employees||4.1||4.3||4.5||4.7||4.6||4.8||4.2||4.4|
|Net Operating Surplus — Corporations||6.8||16.1||7.1||2.9||5.4||2.8||4.0||3.7|
|Job Creation (000s)||94||99||89||78||82||79||66||73|
|Consumer Price Index||2.0||1.7||2.0||2.0||2.0||2.0||2.0||2.0|
|Key External Variables - U.S. Real Gross Domestic Product||2.3||2.2||2.4||2.4||2.1||2.1||2.0||2.1|
|Key External Variables - WTI Crude Oil
($ US per Barrel)
|Key External Variables - Canadian Dollar
|Key External Variables - Three-Month Treasury Bill Rate1 (Per Cent)||0.5||0.7||0.8||1.5||1.5||2.2||1.9||2.5|
|Key External Variables - 10-Year Government Bond Rate1 (Per Cent)||1.9||1.8||2.4||2.5||3.0||3.2||3.2||3.6|
Table 3.6 Footnotes:
p = Ontario Ministry of Finance planning projection.
 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 (October 2017) and Ontario Ministry of Finance.