2015 Ontario Budget
Chapter II: Ontario’s Economic Outlook and Fiscal Plan

Section D: Ontario’s Economic Outlook

Ontario’s economy is expected to grow at a solid pace. This is despite continued slow growth in most advanced economies following the global economic recession, as well as volatility in global financial and commodity markets. Most forecasters are predicting Ontario will be among the provincial leaders in economic growth over the next two years, with growth outpacing the national average.

This is a time for strong business confidence in Ontario as the combination of stronger U.S. growth, lower oil prices and a more competitively valued Canadian dollar will support stronger growth for the province. The ongoing transition of Ontario’s economy to more export- and investment-led growth is expected to continue and gain momentum as businesses seize the improved economic conditions.

The Ministry of Finance is forecasting that growth in real gross domestic product (GDP) will rise from 2.2 per cent in 2014 to 2.7 per cent in 2015, and then average 2.2 per cent between 2016 and 2018.1

TABLE 2.5 Ontario Economic Outlook
(Per Cent)
  2012 2013 2014 2015p 2016p 2017p 2018p
Real GDP Growth 1.7 1.3 2.2 2.7 2.4 2.2 2.1
Nominal GDP Growth 3.2 2.4 3.6 4.2 4.2 4.2 4.1
Employment Growth 0.7 1.8 0.8 1.1 1.3 1.4 1.3
CPI Inflation 1.4 1.0 2.4 1.2 2.0 2.0 2.0
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.

As part of the government’s prudent fiscal management, the economic growth outlook used in this Budget is slightly below the average of private-sector forecasts. However, the Province believes its economic plan, which includes investments in skills and knowledge, in infrastructure and in business, will pay real economic dividends and lead to even higher economic growth.

Ontario’s Economy Gaining Momentum

Economic indicators have demonstrated a resumption of more robust growth for Ontario in 2014, which is expected to continue. The sharp decline in oil prices, a lower Canadian dollar and a strengthening U.S. economy will support higher growth over the outlook.

This will be a boost from Ontario’s modest economic growth in 2013 when real GDP rose by 1.3 per cent — the slowest pace of growth since the global recession. That slow pace of growth reflected lower residential construction, weaker business investment and an easing of export growth.

In 2014, the Ontario economy grew by a solid 2.2 per cent, supported by strong gains in net trade and consumer spending.

Ontario’s economic expansion gained momentum in 2014, with the economy now 8.6 percentage points above its pre-recession level.

The view among private-sector economists, supported by recent economic data, suggests Ontario’s economy is well positioned for continued growth.

Employment Gains Continue

Ontario’s employment recovery from the recession has been faster than in the United States and the average for member countries in the Organisation for Economic Co-operation and Development (OECD).

Since the recessionary low in June 2009, over 500,000 net new jobs have been created, primarily in the private sector. Not only has Ontario recovered all the jobs lost since the 2008 recession, but the majority of net new jobs are in industries paying above-average wages.

Ontario’s unemployment rate continues to improve, falling from 7.6 per cent in 2013 to 7.3 per cent in 2014 — the lowest rate since 2008.

Global Economic Developments and Outlook

Economic growth remains moderate but uneven across the world. Interest rates and currency valuations have been volatile in many countries. Oil prices have also declined dramatically, boosting growth prospects for oil-importing economies such as the United States and Europe. The global economy expanded by 3.3 per cent in 2014, matching its growth in 2013. In the United States, economic growth rebounded strongly following a weather-induced contraction in the first quarter of 2014. In Europe, economic growth remains weak, mainly due to slow growth in domestic demand. In emerging market economies, growth has moderated, due in large part to lower commodity prices and modest growth in China.

Global economic growth is set to improve in 2015, led by stronger growth in the United States. Europe is in the midst of a modest and uneven recovery, but should benefit from recent policy measures and low oil prices.

Economic growth in China, while expected to remain relatively robust, is projected to soften as the country transitions from rapid credit- and investment-led growth towards more balanced and sustainable consumption-led growth. Other emerging markets are expected to strengthen in 2015, although oil-producing countries will be adversely impacted by the drop in oil prices and will be vulnerable to capital outflows and currency depreciations.

Ontario’s relatively solid growth, combined with a stable banking sector, sound fiscal policy and competitive business environment, will help attract business investment against this challenging global backdrop.

U.S. Economy

With more than 160 million U.S. consumers located within a day’s drive of southern Ontario, the United States remains Ontario’s largest trading partner. The U.S. market is particularly important for many Ontario industries, including motor vehicles, mechanical equipment, plastics and steel, and pharmaceuticals.

U.S. real GDP rose by 2.4 per cent in 2014, up from a 2.2 per cent gain in 2013. U.S. real GDP is projected to increase 3.1 per cent in 2015 and 2.9 per cent in 2016, the strongest two-year period of economic growth since 2005–06.

U.S. employment gains averaged 260,000 jobs per month in 2014, up from 199,000 in 2013, lowering the U.S. unemployment rate from 6.6 per cent in January 2014 to 5.6 per cent by year-end.

The U.S. Federal Reserve, which ended its quantitative easing program in the fall of 2014, is expected to raise short-term interest rates later this year. Long-term interest rates, which have remained at historically low levels due to the relative safety of U.S. government assets, are expected to rise gradually over the outlook.

The U.S. dollar continues to strengthen, reflecting the relative improvement in the U.S. economy and the expectation of higher interest rates in comparison to other major economies. The stronger currency, coupled with lower oil prices, steady employment gains and higher wages, will provide support for consumption expenditures, which are expected to be a major driver of U.S. economic growth in 2015.

Oil Prices

The price of West Texas Intermediate (WTI) crude oil declined sharply by about 60 per cent from its June 2014 peak of $108 US per barrel. In March 2015, WTI oil was trading below $50 US per barrel, the lowest price in six years. Oil production in the United States surged to its highest level in almost three decades, with significant new output from shale formations. At the same time, the Organization of the Petroleum Exporting Countries (OPEC) maintained production levels, putting additional downward pressure on oil prices.

Crude oil production is expected to remain elevated over the first half of 2015, keeping downward pressure on prices. However, in the medium term, oil prices are expected to begin recovering as high-cost producers cut output.

In 2015, the price of WTI oil is expected to average $55 US per barrel, with private-sector forecasts ranging from $45 US to $70 US per barrel. On average, forecasters expect the price of oil to gradually increase over the medium term, rising to $84 US by 2018. As an oil-importing jurisdiction, lower-priced oil reduces input costs for Ontario industry and puts money into consumers’ pockets.

Lower Oil Prices Will Provide Savings to Consumers and Businesses

The price of West Texas Intermediate (WTI) crude oil is expected to average $55 US per barrel in 2015, down from an average of $93 US in 2014. This 40 per cent drop in the average annual price of oil will translate into lower retail prices for gasoline, diesel and other refined products in 2015, benefiting consumers and businesses in Ontario.

Assuming relatively stable demand for gasoline and other oil products, Ontario consumers and businesses could save about $5.1 billion in 2015. Of this, about $2.6 billion would accrue to firms and $2.4 billion to households.*

Estimated Savings from Lower Oil Prices in 2015

The average Ontario household could expect to save almost $500 from lower fuel costs in 2015. A portion of this will be saved or used to pay down debt and the rest will be spent on goods and services. Savings accruing to Ontario businesses will lower input costs and increase cash flow, which could also help boost investment.

A similar positive effect from lower oil prices is expected for the province’s major trading partner, the United States, which will support demand for Ontario exports.

* These shares are based on Statistics Canada’s 2011 Ontario Input–Output Tables. A small share of savings ($140 million) would also accrue to government and the non-profit sector.

The Canadian Dollar

The Canadian dollar averaged 91 cents US in 2014, down from 97 cents US in 2013. Recently, the dollar has traded around 80 cents US, its lowest level since early 2009. Sharp declines in oil prices since June 2014 have put downward pressure on the dollar and lowered the growth outlook for Canada. This has prompted the Bank of Canada to cut interest rates, adding further downward pressure on the currency.

The lower Canadian dollar will help improve Ontario business competitiveness and encourage stronger export growth. However, the lower value of the Canadian dollar will raise prices for imported goods, affecting both businesses and consumers.

The Canadian dollar is expected to average 80 cents US in 2015 and then rise gradually over the outlook to 89 cents US by 2018.

Financial Markets

In January, the Bank of Canada cut the target for the overnight rate to 0.75 per cent from 1.0 per cent, where it had been since September 2010. The Bank indicated that it had lowered interest rates in response to the sharp drop in oil prices and the corresponding risks for Canadian economic growth and inflation.

In Europe, the European Central Bank announced a significant new quantitative easing program in January, to purchase approximately $1.2 trillion US in government bonds, in an attempt to stimulate the European economy. In the United States, the Federal Reserve ended its quantitative easing program in October 2014, reflecting strong signs of a sustained improvement in the U.S. economy. While many market participants had expected the U.S. Federal Reserve to begin increasing its policy interest rate by mid-2015, softening global growth, a strong U.S. dollar and weak CPI inflation may delay the announcement.

The yield on a three-month Canadian treasury bill is expected to average 0.6 per cent in 2015 and rise to 1.1 per cent in 2016. Yields are forecast to reach 3.4 per cent by 2018.

Long-term interest rates have been declining in many advanced countries, reflecting weak global growth and inflation prospects. The yield on 10-year Government of Canada bonds averaged 2.2 per cent in 2014, down from 2.3 per cent in 2013. Long-term Government of Canada bond yields are expected to decline to 1.8 per cent in 2015 and then rise to 2.7 per cent in 2016, 3.8 per cent in 2017 and 4.2 per cent in 2018.

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
  2012 2013 2014 2015p 2016p 2017p 2018p
World Real GDP Growth (Per Cent) 3.4 3.3 3.3e 3.5 3.7 4.1 4.0
U.S. Real GDP Growth (Per Cent) 2.3 2.2 2.4 3.1 2.9 2.7 2.6
West Texas Intermediate Crude Oil ($US/bbl.) 94 98 93 55 70 79 84
Canadian Dollar (Cents US) 100.1 97.1 90.5 79.5 80.0 85.0 89.0
Three-Month Treasury Bill Rate1 (Per Cent) 0.9 1.0 0.9 0.6 1.1 2.5 3.4
10-Year Government Bond Rate1 (Per Cent) 1.9 2.3 2.2 1.8 2.7 3.8 4.2
e = estimate.
p = Ontario Ministry of Finance planning projection based on external sources.
1 Government of Canada interest rates.
Sources: IMF World Economic Outlook (October 2014 and January 2015), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (March 2015), U.S. Energy Information Administration, Bank of Canada, Ontario Ministry of Finance Survey of Forecasters (March 2015) 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 +0.7 +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.

Outlook for Ontario’s Economic Growth

The Ministry of Finance is forecasting Ontario’s real GDP to increase by a solid 2.7 per cent in 2015, followed by 2.4 per cent in 2016, 2.2 per cent in 2017 and 2.1 per cent in 2018.

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 upside, lower oil prices, a more competitively valued Canadian dollar and stronger U.S. growth could boost Ontario exports more than expected. On the downside, volatility in commodity and financial markets along with moderating growth in important emerging market economies represent key risks for the world economy.

For Ontario, the transition of growth away from government spending and residential investment towards exports and business investment is expected to gain momentum. Export growth nearly doubled in 2014 and is expected to increase significantly again in 2015, reflecting the resurgent U.S. economy, a lower dollar and improved competitiveness. Lower interest rates and solid employment gains will also support consumer spending, allowing for more balanced economic expansion.

Lower oil prices and a more competitively valued Canadian dollar are giving the Ontario economy a boost, but the government is not counting on these developments alone, which can be temporary. That is why Ontario is continuing to invest in advanced manufacturing and encouraging businesses to become more efficient, innovative and competitive.

Ontario’s Consumer Price Index (CPI) increased by 2.4 per cent in 2014, rising from a 1.0 per cent increase in 2013. The increase in CPI inflation was partly due to higher import prices, reflecting the decline in the Canadian dollar. Lower fuel prices are expected to help CPI inflation moderate to 1.2 per cent in 2015. Over the medium term, CPI inflation is expected to return to its long-run trend, averaging 2.0 per cent per year.

Ontario’s labour market is expected to continue strengthening in 2015, and grow at a steady pace over the forecast period. Employment is forecast to increase by 1.1 per cent or 78,000 net new jobs in 2015, and rise by an average of 1.4 per cent per year over the 2016 to 2018 period. Steady gains in employment will lower Ontario’s unemployment rate from an annual average rate of 7.3 per cent in 2014 to 6.3 per cent in 2018.

Household income increased by 3.4 per cent in 2014 and is projected to grow by an average rate of 4.2 per cent annually over the 2015 to 2018 period. Real household spending growth is expected to average 2.4 per cent per year over the 2015 to 2018 period.

There were 59,100 housing starts in Ontario in 2014, down modestly from 61,100 starts in 2013. Existing home sales rose by 3.7 per cent in 2014, while the average price of an Ontario resale home increased by 7.0 per cent.

Demand for new homes in Ontario will continue to be supported by steady growth in the number of new households. Housing starts are expected to average 66,300 units per year between 2015 and 2018.

The relatively strong gains in house prices in Ontario and Canada over the past few years have been supported by record-low interest rates and continued gains in employment. Though private-sector economists expect interest rates to rise from current historically low levels, rising employment, higher incomes and continued growth in the number of Ontario families will support demand for housing, keeping house prices relatively stable over the outlook.

Canada’s household debt-to-income ratio increased to 163.3 per cent in the fourth quarter of 2014, rising for the third consecutive quarter. Despite relatively moderate year-over-year increases, the level of household debt in Canada remains elevated.

Debt service costs as a per cent of household disposable income, a measure of the affordability of interest payments, declined from a high of 9.2 per cent in the fourth quarter of 2007 to 6.9 per cent in the fourth quarter of 2014, remaining close to an all-time low for the past three quarters, a reflection of historically low interest rates.

Despite solid profit levels, business investment has been disappointing over the last three years. However, gains in machinery and equipment investment in the second half of 2014 provide encouraging evidence that business confidence and investment are gaining momentum. To support stronger economic growth, business needs to increase investment to take advantage of the opportunities provided by strong corporate profits and healthy credit markets.

Business investment in machinery and equipment is expected to increase by 5.1 per cent in 2015 and by an average of 5.9 per cent annually over the next three years. Low interest rates, a more competitive exchange rate and a stronger U.S. economy provide compelling reasons why this is a time for confidence in the Ontario economy.

The net operating surplus of corporations rose by 8.0 per cent in 2014, and is projected to grow by an average of 4.7 per cent annually over the 2015 to 2018 period. As a share of Ontario GDP, the net operating surplus of corporations increased to 12.5 per cent in 2014, its highest share since 2011.

Ontario’s export performance has been challenged since the Canadian dollar began to appreciate in the early 2000s, and, more recently, since global growth slowed. However, despite these challenges, the share of Ontario’s exports to non-U.S. destinations has more than doubled over the last 10 years. Export diversification is allowing Ontario companies to reach new markets, boosting economic growth and job creation.

Although markets for Ontario exports have become more diversified in recent years, the United States remains by far Ontario’s largest trading partner. Over the 2011–14 period, Ontario exports to the United States increased by 17.5 per cent. A resurgent U.S. economy and, in particular, a rebound in U.S. consumer demand, including motor vehicle sales, will support stronger growth in Ontario’s exports. U.S. motor vehicle sales are expected to rise 3.0 per cent in 2015.

The recent decline in the Canadian dollar is beneficial for Ontario exporters and the province’s import-competing industries, such as tourism and hospitality. However, to take full advantage of the strengthening U.S. economy and the lower Canadian dollar, higher investment spending will be needed to boost the capacity of Ontario exporters.

Overall, Ontario’s total exports in real terms are projected to slow from 5.0 per cent in 2015 to 3.3 per cent per year, on average, between 2016 and 2018 — mostly the result of more moderate U.S. growth and a rising Canadian dollar.

Details of the Ontario Economic Outlook

The following table provides details of the Ministry of Finance’s economic outlook for 2015 to 2018.

TABLE 2.8 The Ontario Economy, 2013 to 2018
(Per Cent Change)
  Actual Projection
  2013 2014 2015 2016 2017 2018
Real Gross Domestic Product 1.3 2.2 2.7 2.4 2.2 2.1
Household Consumption 2.1 2.5 2.6 2.4 2.3 2.2
Residential Construction (2.3) 0.7 1.8 1.6 2.0 2.4
Non-residential Construction (5.2) (1.8) 4.5 3.1 3.5 2.8
Machinery and Equipment (8.2) 0.7 5.1 6.0 5.6 6.1
Exports 1.8 3.5 5.0 3.5 3.2 3.2
Imports 0.1 2.1 2.9 2.5 2.1 2.7
Nominal Gross Domestic Product 2.4 3.6 4.2 4.2 4.2 4.1
Other Economic Indicators            
Retail Sales 2.3 4.8 4.2 4.2 4.0 3.6
Housing Starts (000s) 61.1 59.1 61.0 65.0 69.0 70.0
Home Resales 0.5 3.7 1.1 (2.5) 1.4 2.0
Primary Household Income 2.9 3.4 3.9 4.3 4.4 4.2
Compensation of Employees 2.8 3.1 4.0 4.3 4.4 4.5
Net Operating Surplus — Corporations 0.0 8.0 5.0 4.8 4.7 4.4
Consumer Price Index 1.0 2.4 1.2 2.0 2.0 2.0
Employment 1.8 0.8 1.1 1.3 1.4 1.3
Job Creation (000s) 121 55 78 93 99 96
Unemployment Rate (Per Cent) 7.6 7.3 6.9 6.7 6.5 6.3
Key External Variables            
U.S. Real Gross Domestic Product 2.2 2.4 3.1 2.9 2.7 2.6
WTI Crude Oil ($ US per Barrel) 98 93 55 70 79 84
Canadian Dollar (Cents US) 97.1 90.5 79.5 80.0 85.0 89.0
3-month Treasury Bill Rate1 1.0 0.9 0.6 1.1 2.5 3.4
10-year Government Bond Rate1 2.3 2.2 1.8 2.7 3.8 4.2
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 2015), 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 2015 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 2015. 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 real GDP growth of 2.8 per cent in 2015, 2.5 per cent in 2016, 2.3 per cent in 2017 and 2.2 per cent in 2018. 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)
  2015 2016 2017 2018
BMO Capital Markets (March) 2.5 2.3
Central 1 Credit Union (March) 2.8 3.2
Centre for Spatial Economics (January) 2.7 2.4 2.3 2.3
CIBC World Markets (February) 2.8 2.8
Conference Board of Canada (February) 2.9 2.6 2.1 2.1
Desjardins Group (March/January) 2.9 2.4 1.9 1.6
IHS Global Insight (January) 2.5 2.1 2.6 2.5
Laurentian Bank Securities (March) 2.6 2.6
National Bank (February) 2.8 2.1
RBC Financial Group (March) 3.3 2.7
Scotiabank Group (February) 2.7 2.4
TD Bank Financial Group (January) 2.8 2.5
University of Toronto (February) 2.8 2.9 2.8 2.4
Private-Sector Survey Average 2.8 2.5 2.3 2.2
Ontario's Planning Assumption 2.7 2.4 2.2 2.1
Source: Ontario Ministry of Finance Survey of Forecasters (March 31, 2015).

Compared to forecasts at the time of the 2014 Budget, the current average private-sector outlook for Ontario real GDP growth is stronger for 2015, and lower for 2016 and 2017. Over the medium term, rising interest rates and oil prices, coupled with easing U.S. economic growth, are expected to contribute to more moderate economic growth in Ontario.

Comparison to the 2014 Budget

The estimate of Ontario real GDP growth in 2014 is slightly higher than the 2014 Budget forecast. Economic growth in 2014 was supported by strong U.S. demand, a lower Canadian dollar and lower oil prices.

Key changes since the 2014 Budget include:

  • Higher real GDP growth in 2015, followed by lower growth in 2016 and 2017;
  • Higher CPI inflation in 2014, followed by lower inflation in 2015;
  • Weaker-than-expected employment growth from 2014 through 2016; and
  • Higher nominal GDP growth in 2014, but slightly lower growth from 2015 through 2017.
TABLE 2.10 Changes in Ministry of Finance Key Economic Forecast Assumptions: 2014 Budget Compared to 2015 Budget
(Per Cent Change)
  2014 2015p 2016p 2017p
  2014 Budget Actual 2014
Budget
2015 Budget 2014 Budget 2015 Budget 2014 Budget 2015 Budget
Real Gross Domestic Product 2.1 2.2 2.5 2.7 2.5 2.4 2.6 2.2
Nominal Gross Domestic Product 3.5 3.6 4.4 4.2 4.4 4.2 4.6 4.2
Retail Sales 4.1 4.8 4.0 4.2 4.4 4.2 4.4 4.0
Housing Starts (000s) 58.0 59.1 60.0 61.0 67.0 65.0 69.0 69.0
Primary Household Income 3.3 3.4 4.4 3.9 4.7 4.3 4.7 4.4
Compensation of Employees 3.5 3.1 4.6 4.0 4.6 4.3 4.7 4.4
Net Operating Surplus — Corporations 4.4 8.0 4.2 5.0 5.0 4.8 4.7 4.7
Employment 1.1 0.8 1.5 1.1 1.6 1.3 1.4 1.4
Job Creation (000s) 73 55 107 78 110 93 102 99
Consumer Price Index 1.5 2.4 1.9 1.2 2.0 2.0 2.0 2.0
Key External Variables                
U.S. Real Gross Domestic Product 2.7 2.4 3.0 3.1 2.9 2.9 2.8 2.7
WTI Crude Oil ($ US per Barrel) 97 93 96 55 96 70 98 79
Canadian Dollar (Cents US) 90.0 90.5 91.0 79.5 92.0 80.0 93.0 85.0
3-month Treasury Bill Rate1 (Per Cent) 1.0 0.9 1.3 0.6 2.4 1.1 3.3 2.5
10-year Government Bond Rate1 (Per Cent) 2.8 2.2 3.5 1.8 3.9 2.7 4.3 3.8
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 2015) and Ontario Ministry of Finance.

1 Based on information available to March 31, 2015.

Chart Descriptions

Chart 2.6: Performance of Key Ontario Economic Indicators in 2014

This bar chart shows the per cent change of five Ontario economic indicators in 2014. Ontario new auto sales increased 11.5 per cent in 2014; international merchandise exports increased 8.0 per cent in 2014; wholesale trade increased 7.5 per cent in 2014; manufacturing sales increased 6.1 per cent in 2014; and retail sales increased 4.8 per cent in 2014.

Return to Chart 2.6

Chart 2.7: Ontario’s Economic Expansion

This bar chart shows the per cent change of Ontario’s real GDP along with the per cent change of the major categories of spending that occurred from the pre-recession peak in the second quarter of 2008 to the latest quarter, the fourth quarter of 2014. Since the pre-recession peak that occurred in the second quarter of 2008, real GDP has increased 8.6 per cent; household spending has increased 12.9 per cent; government spending, which includes both investment and current spending, has increased 8.1 per cent; business investment, which includes residential investment, non-residential investment, machinery and equipment investment and intellectual property products, has declined 2.7 per cent; exports have increased 7.0 per cent; and imports have increased 7.1 per cent.

Return to Chart 2.7

Chart 2.8: Ontario Job Recovery Ahead of U.S. and OECD Average

This 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 fourth quarter of 2014. As of the fourth quarter of 2014, employment in Ontario is well recovered at 4.3 per cent above its pre-recession peak and employment in the United States is 1.4 per cent above its pre-recession peak. As of the third quarter of 2014, the OECD recovery is 2.5 per cent above its pre-recession peak.

Return to Chart 2.8

Chart 2.9: Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Jobs

This bar chart shows Ontario employment gains since June 2009. Total employment increased by 523,000, with full-time employment gains of 494,000 and part-time employment increases of 29,000. Private-sector employment increased by 351,000 since June 2009, while public-sector employment increased by 87,000 and self-employment by 85,000. Employment in above-average wage industries increased by 389,000, while employment in below-average wage industries increased by 134,000.

Return to Chart 2.9

Chart 2.10: Global Economic Growth to Improve

This bar chart shows real GDP growth for the global economy, advanced economies, and emerging and developing economies from 2012 to 2016. Real GDP growth for the global economy was 3.4 per cent in 2012 and 3.3 per cent in both 2013 and 2014. According to the International Monetary Fund (IMF), growth is projected to be 3.5 per cent in 2015 and 3.7 per cent in 2016. Real GDP growth for advanced economies was 1.2 per cent in 2012, 1.3 per cent in 2013 and 1.8 per cent in 2014. According to the IMF, growth is projected to be 2.4 per cent in both 2015 and 2016. Real GDP growth for emerging and developing economies was 5.1 per cent in 2012, 4.7 per cent in 2013 and 4.4 per cent in 2014. According to the IMF, growth is projected to be 4.3 per cent in 2015 and 4.7 per cent in 2016.

Return to Chart 2.10

Chart 2.11: Strengthening U.S. Recovery

This bar chart shows U.S. real GDP growth from 2010 to 2018. U.S. real GDP increased 2.5 per cent in 2010 and grew by 1.6 per cent in 2011, 2.3 per cent in 2012, 2.2 per cent in 2013 and 2.4 per cent in 2014. According to Blue Chip Economic Indicators (March 2015), U.S. real GDP is projected to grow by 3.1 per cent in 2015, 2.9 per cent in 2016, 2.7 per cent in 2017 and 2.6 per cent in 2018.

Return to Chart 2.11

Chart 2.12: Oil Prices Expected to Recover Gradually

This line chart shows the price of West Texas Intermediate (WTI) crude oil from 2000 to 2018. The price of WTI crude oil rose from $30 US per barrel in 2000 to $98 US per barrel in 2013 and declined to $93 US per barrel in 2014. The Ontario Ministry of Finance projects oil prices will fall to $55 US per barrel in 2015 and then increase to $70 US per barrel in 2016, $79 US per barrel in 2017 and $84 US per barrel in 2018. This forecast is based on the private-sector average view available up to March 31, 2015.

Return to Chart 2.12

Chart 2.13: Canadian Dollar to Remain Below Parity

This line chart shows the Canadian exchange rate from 1990 to 2018 and the low and high private-sector projections for 2015 to 2018. 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 2012 period and was at parity to the U.S. dollar in 2012. The Ontario Ministry of Finance projects the Canadian dollar will fall to 80 cents US in 2015 and then increase to 89 cents US in 2018. Private-sector projections range from a high of 92 cents US to a low of 86 cents US in 2018.

Return to Chart 2.13

Chart 2.14: Interest Rates to Rise over the Medium Term

This line chart shows the 10-year Government of Canada bond yield and the three-month Government of Canada treasury bill rate from 1990 to 2018. 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. It is expected to fall from 2.2 per cent in 2014 to 1.8 per cent in 2015 before rising gradually to 4.2 per cent in 2018. The three-month treasury bill rate has declined from close to 13 per cent in 1990 to 0.9 per cent in 2014. It is projected to fall to 0.6 per cent in 2015 and then rise to 3.4 per cent in 2018.

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Chart 2.15: Inflation Expected to Remain Moderate

This bar chart shows the percentage change in the Ontario Consumer Price Index (CPI) from 2010 to 2018. Ontario CPI increased by 2.5 per cent in 2010, 3.1 per cent in 2011, 1.4 per cent in 2012, 1.0 per cent in 2013 and 2.4 per cent in 2014. The Ontario Ministry of Finance projects CPI inflation to be 1.2 per cent in 2015 and 2.0 per cent in 2016, 2017 and 2018.

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Chart 2.16: Employment Expected to Rise over the Medium Term

This bar chart shows the annual level of Ontario employment from 2010 to 2018. Ontario employment rose from 6.5 million in 2010 to 6.9 million in 2014. The Ontario Ministry of Finance projects employment will increase steadily to 7.2 million in 2018.

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Chart 2.17: Growth in Households to Support Housing Starts

This combined line and bar chart compares the annual level of household formations in Ontario to the annual level of housing starts in Ontario, between 2010 and 2018. The line, representing household formations, begins at 72,000 household formations in 2010 and ends at 78,000 household formations in 2018. The bars, representing housing starts, begin at 60,000 housing starts in 2010 and end at 70,000 housing starts in 2018. Over the historical period, 2010 to 2014, household formations averaged 71,900 annually, compared to housing starts, which averaged 65,000 annually. Over the forecast period, 2015 to 2018, household formations are expected to average 76,400 annually, compared to housing starts, which are expected to average 66,300 annually, with both showing a rising trend over the forecast.

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Chart 2.18: Although Elevated, Canadian Household Debt Remains Affordable

This line chart from the first quarter of 2000 to the fourth quarter of 2014 shows Canadian household debt as a percentage of household disposable income and Canadian debt service costs as a per cent of household disposable income. The line for household debt as a per cent of household disposable income increased steadily from 108.1 per cent in the first quarter of 2000 to a peak of 163.3 per cent in the fourth quarter of 2014. The line for debt service costs as a per cent of household disposable income was in the high eight per cent range over the 2000 to mid-2001 period, easing to the mid-seven to low eight per cent range over the 2002–06 period. The ratio began to rise subsequently, hitting a peak of 9.2 per cent in the fourth quarter of 2007. From this peak it declined steadily, falling to 6.9 per cent in the fourth quarter of 2014.

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Chart 2.19: Ontario Business Machinery and Equipment Investment Expected to Rise in Line with Profits

The line chart shows business machinery and equipment (M&E) investment (in real 2007 dollars) and net operating surplus (in nominal dollars) from 2009 to 2018. Investments in machinery and equipment increased from $21.8 billion in 2009 to $24.4 billion in 2011, and then declined to $22 billion in 2014. The Ontario Ministry of Finance projects M&E investments to increase to $27.4 billion by 2018. Net operating surplus of corporations increased from $58.4 billion in 2009 to $90.5 billion in 2014. The Ontario Ministry of Finance projects net operating surplus of corporations to increase to $108.8 billion by 2018.

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Chart 2.20: Strong Export Gains Will Support Growth

The bar chart shows the annual level of Ontario exports in 2007 dollars from 2007 to 2018. Exports fell from $339 billion in 2007 to a low of $274 billion in 2009. Exports steadily increased to $341 billion in 2014. The Ontario Ministry of Finance projects exports will increase to $395 billion by 2018.

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Chart 2.21: Private-Sector Outlook for Growth Stronger in 2015 but Weaker in 2016 and 2017

The bar chart shows the average private-sector projection for Ontario’s real GDP growth at the time of the 2014 Budget and 2015 Budget (the current view). The current average private-sector forecast for Ontario real GDP growth for 2015 is 2.8 per cent compared to 2.6 per cent at the time of the 2014 Budget. Compared to the forecast at the time of the 2014 Budget, the current average private-sector forecast for Ontario real GDP growth is lower in 2016 and 2017.

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