2016 Ontario Budget
Chapter III: Economic and Fiscal Outlook

Section A: Economic Outlook

The Ministry of Finance is forecasting growth in Ontario real gross domestic product (GDP) of 2.2 per cent on average over the 2016–19 period. For prudent fiscal planning, these real GDP growth projections are slightly below the average of private-sector forecasts.1

TABLE 3.1 Ontario Economic Outlook
(Per Cent)
  2013 2014 2015p 2016p 2017p 2018p 2019p
Real GDP Growth 1.3 2.7 2.5 2.2 2.4 2.2 2.0
Nominal GDP Growth 1.9 4.1 3.6 4.0 4.6 4.2 4.0
Employment Growth 1.8 0.8 0.7 1.1 1.2 1.2 1.1
CPI Inflation 1.0 2.4 1.2 1.8 2.0 2.0 2.0
p = Ontario Ministry of Finance planning projection.
Note: Employment growth and CPI inflation are actuals in 2015.
Sources: Statistics Canada and Ontario Ministry of Finance.

Ontario’s economy is benefiting from solid economic growth in the United States and significant shifts in key external factors, such as reduced oil prices, a more competitive Canadian dollar and low interest rates. However, slower growth among emerging economies and plunging commodity prices have led to increased volatility in global financial and currency markets, and weakened confidence in the overall Canadian economy.

Shifting Global Economic Environment

Over the past year and a half, there has been a significant shift in the global economic environment. Growth in emerging and developing economies — notably China — has slowed, while economic growth in some advanced economies — particularly the United States — remains solid.

These developments, together with uncertainty about the global economic outlook, have contributed to dramatically lower commodity prices, notably for crude oil, with increasing supply adding to the downward pressure. In tandem with the drop in oil prices, the Canadian dollar has fallen against its U.S. counterpart, interest rates have declined and stock markets have lost value. This has shaken business confidence and left Ontario households unsure about the ultimate impact on their budgets and spending plans.

For example, while lower fuel prices have benefited households, the drop in the Canadian dollar has boosted the cost of imported food and other goods. Overall, the Ontario economy is expected to benefit from the shifting global economic environment as businesses capitalize on improving competitiveness. Households will also find firm support from an improving labour market, but there may be challenges related to the transitioning underway in the global economy.

Impact of Consumer Price Movements on Ontario Household Expenditures

Changing economic factors are having different impacts on the prices of various categories of household spending. For example, a lower Canadian dollar has generally resulted in higher prices for food and other imports, while lower global oil prices have reduced the price of gasoline. Based on spending patterns in 2014 and movements in consumer prices over the last year, Ontario households would have, on average, paid $237 more for food bought in stores and saved $457 on gasoline.

Ontario’s Recent Economic Performance

Despite the challenges stemming from an uncertain global economic setting, Ontario’s economy continues to grow.

Ontario’s real GDP increased by 2.7 per cent in 2014, strengthening from growth of 1.3 per cent in 2013 and outpacing the national average for the first time since 2002.

After a slow start to 2015, when the economy was affected by a number of temporary factors, including unusually harsh winter weather, closures at auto plants for retooling, and a west-coast port strike affecting exports, Ontario’s economic growth gained pace in the second and third quarters of 2015, with real GDP advancing 0.4 per cent and 0.9 per cent, respectively. The acceleration in growth was driven by a boost from exports and sustained growth in household spending.

Ontario’s economy has fully recovered from the 2008–09 global recession. As of the third quarter of 2015, real GDP was 15.5 per cent above the recessionary low and 10.1 per cent above its pre-recession peak. When adjusting for population, real GDP also has posted solid gains, rising 8.5 per cent above the recessionary low and 2.5 per cent above its pre-recession peak.

Employment in Ontario was hit hard during the recession but has since recovered at a healthy pace. Over 600,000 net new jobs have been added since the recessionary low in 2009, with the majority in the private sector and in industries that pay above-average wages.

Ontario’s recovery from the global recession was driven by solid economic fundamentals, supported by long-term job recovery efforts by the government that included:

  • Ontario’s Tax Plan for Jobs and Growth, which helps build a more innovative and dynamic business environment;
  • Supporting tomorrow’s workforce through the modernization and transformation of the employment and training system, the Ontario Youth Jobs Strategy and investments in postsecondary education; and
  • Significant infrastructure investments that bolster Ontario’s long-term economic capacity and competitiveness.

These measures not only provided support for jobs and the economy, both during and immediately after the global recession, but also created a stronger foundation for future growth in Ontario.

The Ontario government’s plan for jobs and the economy, in response to the most severe global economic downturn since the Great Depression, included fiscal deficits and borrowing for capital. To help stimulate the economy and counter the effects of the recession, the government increased its net fiscal contribution both for capital and program spending, totalling $19.5 billion in 2009–10. As the recession eased, the government responsibly managed program spending while continuing supportive outlays on capital to improve the long-term competitiveness of the Ontario economy.

Ontario’s Economy Outpacing Canada

Major economic indicators have shown stronger gains in Ontario compared to the rest of Canada in 2015. For example, indicators of business-sector activity, such as manufacturing sales and wholesale trade, have advanced more strongly than the average of the other provinces. On the consumer side, there have been stronger-than-average gains in retail sales and housing market activity.

Ontario’s unemployment rate continues to improve as the economy creates jobs. The unemployment rate declined from 7.3 per cent in 2014 to 6.8 per cent in 2015, a greater rate of improvement than any other province. As a result, Ontario’s unemployment rate in 2015 moved below the national average for the first time since 2005.

Ontario Creating High-Quality Jobs

Ontario’s employment gains since the recession have been concentrated in industries that pay above-average wages. In addition, most of the net new jobs were in the private sector and all in full-time positions.

Ontario’s unemployment rate averaged 6.8 per cent in 2015, down from 9.1 per cent in 2009. All regions of the province have seen a decline in the unemployment rate over this period, though in differing degrees.

Ontario Exports Up Strongly

The decline in the Canadian dollar has helped improve the competitiveness of Ontario’s export sector. This, along with solid U.S. demand, has supported Ontario’s trade performance. International exports increased by a strong 7.1 per cent in 2014, the fastest gain since 2011. Export gains were broadly based, with solid advances in consumer goods, industrial machinery and equipment, and automotive products.

External Economic Environment

Global economic growth has softened, largely due to the deceleration in economic activity in emerging markets, particularly in China. In 2015, real GDP growth in emerging markets is estimated to have decelerated to 4.0 per cent, after averaging 6.0 per cent over the 2000–2014 period.

The repercussions of slower emerging market growth are being felt widely through lower commodity prices and increased volatility in financial markets. Equity markets have declined in many countries. Currencies of large commodity exporters, such as Canada, have also recorded significant depreciations relative to the U.S. dollar.

On the other hand, economic growth in advanced non-commodity–based economies accelerated moderately in 2015. The eurozone has emerged from an uneven and prolonged downturn, while the U.S. economy continues to grow at a solid pace.

Global growth is projected to improve modestly in 2016 as advanced economies benefit from low interest rates and fuel prices. China’s economic performance is expected to moderate further as it continues to struggle with financial instability and economic rebalancing. Commodity prices are expected to rise modestly, but remain well below recent peaks and weigh on economic growth in regions reliant on commodity exports.

Oil Prices

The price of West Texas Intermediate (WTI) crude oil declined by over 70 per cent from its June 2014 peak of $108 US per barrel to below $30 US per barrel in early 2016. Oil production in the United States has surged to its highest level in almost three decades, with significant new output from shale formations. Output from the Organization of the Petroleum Exporting Countries has also risen. At the same time, global commodity demand has softened, largely reflecting an economic slowdown in China.

Private-sector forecasts for the price of WTI oil are ranging from $37 US to $48 US per barrel in 2016, or an average of $42 US per barrel. Forecasters expect the price of oil to gradually increase over the medium term, reaching $67 US by 2019.

Lower oil prices translated into lower retail prices for gasoline, diesel and other refined products in 2015, benefiting consumers and businesses in Ontario. Assuming stable demand for gasoline and other oil products, and taking into account the depreciation of the Canadian dollar, Ontario consumers and businesses saved an estimated $6.6 billion in 2015. Of this, about $3.8 billion would accrue to firms and $2.7 billion to households, which amounts to approximately $500 in savings for the average Ontario household.2

In addition to spending on goods and services, consumers typically put a portion of their fuel cost savings towards paying down debt, and the rest they save. At the same time, savings accruing to Ontario businesses lower costs and increase cash flow, which helps support stronger investment spending.

Financial Markets

Internationally, many central banks have been moving towards more stimulative monetary policy as countries struggle with low inflation and slow economic growth. The Bank of Canada cut interest rates twice in 2015 as the economy adjusted to low oil prices. The European Central Bank implemented a number of new stimulus measures late last year, including an extension of its quantitative easing program introduced in January 2015. On the other hand, the U.S. Federal Reserve deemed economic growth to be strong enough to begin lifting interest rates in late 2015, though the pace of tightening is expected to be gradual.

In Canada, interest rates are expected to stabilize in 2016. The yield on a three-month Canadian treasury bill is expected to remain at 0.5 per cent in 2016, after declining from 0.9 per cent to 0.5 per cent in 2015. By 2019, yields are forecast to reach 2.8 per cent. The yield on 10-year Government of Canada bonds also fell in 2015, from 2.2 per cent to 1.5 per cent. Long-term Government of Canada bond yields are expected to rise steadily and reach 3.6 per cent in 2019.

Sharply lower oil prices and diverging monetary policy between Canada and the United States have contributed to a depreciation of the Canadian dollar to an average of 78.2 cents US in 2015, down from 90.5 cents US in 2014. Compared to the recent peak in mid-2014, the dollar has declined by approximately 25 per cent to below 70 cents US in January 2016. The Canadian dollar is expected to rise over the second half of the year and average 72 cents US in 2016, then appreciate gradually, reaching 83 cents US by 2019.

Lower interest rates have spurred an increase in consumer spending, including big-ticket items such as automobiles. The lower Canadian dollar has attracted more Americans to visit Ontario, while also encouraging more Ontarians to spend within the province. Ontario’s businesses are also benefiting from the lower Canadian dollar through improved competitiveness and strengthening export growth, especially in sectors with exchange-rate-sensitive exports. However, the lower value of the Canadian dollar will also raise prices for imported goods, affecting both businesses and consumers.

U.S. Economy

The United States remains Ontario’s largest trading partner: it is the destination for nearly 80 per cent of the province’s exports. The U.S. market is particularly important for many Ontario industries, including motor vehicles, mechanical equipment, plastics, steel and pharmaceuticals.

U.S. real GDP expanded a solid 2.4 per cent in 2015. Job creation remains robust, accelerating in the fourth quarter of 2015, while the unemployment rate has moved steadily lower. A strong labour market is expected to continue to propel domestic demand over the near term. In contrast, net exports are forecast to act as a drag on the U.S. economy, reflecting weaker global demand and a higher U.S. dollar. All told, U.S. real GDP is projected to grow by 2.1 per cent in 2016 and 2.4 per cent in 2017. The U.S. unemployment rate is expected to move lower, from 5.3 per cent in 2015 to 4.8 per cent by 2016 and 4.5 per cent in 2017.

Key Forecast Assumptions

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 3.2 Outlook for External Factors
  2013 2014 2015 2016p 2017p 2018p 2019p
World Real GDP Growth (Per Cent) 3.3 3.4 3.1e 3.4 3.6 3.9 4.0
U.S. Real GDP Growth (Per Cent) 1.5 2.4 2.4 2.1 2.4 2.4 2.2
West Texas Intermediate Crude Oil ($US/bbl.) 98 93 49 42 53 60 67
Canadian Dollar (Cents US) 97.1 90.5 78.2 72.0 75.5 81.0 83.0
Three-Month Treasury Bill Rate1 (Per Cent) 1.0 0.9 0.5 0.5 0.8 2.2 2.8
10-Year Government Bond Rate1 (Per Cent) 2.3 2.2 1.5 1.6 2.3 3.3 3.6
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 2015 and January 2016), U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators (October 2015 and February 2016), U.S. Energy Information Administration, Bank of Canada, Ontario Ministry of Finance Survey of Forecasters (January 2016) and Ontario Ministry of Finance.

Outlook for Ontario’s Economic Growth

The Province is forecasting continued growth in Ontario’s economy, with real GDP projected to rise by 2.2 per cent annually, on average, over the 2016 to 2019 period.

Lower oil prices, a more competitive Canadian dollar and a healthy U.S. economy are projected to lead to a broadening of economic growth in Ontario as exporters invest to meet ongoing demand.

Exports and business investment are expected to be key drivers of Ontario’s economic growth over the forecast period. Ontario’s exports are expected to rise by 3.0 per cent annually, on average, over the 2016 to 2019 period. While interprovincial exports are projected to remain steady over the near term, reflecting challenges in resource-based provinces, international exports are expected to continue to benefit from a lower Canadian dollar and strong U.S. demand. In addition, the government’s Going Global Trade Strategy will continue to help Ontario firms compete and become more productive by learning about global opportunities and changing markets.

Employment is forecast to increase by 1.1 per cent, or 78,000 net new jobs in 2016, up from growth of 0.7 per cent in 2015. Steady employment gains of 1.2 per cent annually, on average, are expected over the 2017 to 2019 period. Ontario’s unemployment rate is projected to improve to 6.6 per cent this year, down from 6.8 per cent in 2015. The unemployment rate is forecast to steadily decline to 6.1 per cent by 2019.

The composition of U.S. real GDP growth, driven by healthy consumer demand and strong business investment, is projected to stimulate demand for Ontario exchange-rate-sensitive exports. Those exchange-rate-sensitive sectors3 are already benefiting from strong U.S. demand and the lower exchange rate. On a trend basis, exports from these sectors are outperforming other Ontario export categories since early 2015.

Rising exports, reflecting solid U.S. demand and a lower Canadian dollar, will provide an increasingly compelling case for increased investment, especially now that Ontario’s businesses are operating closer to full capacity. Business investment will also continue to be supported by Ontario’s competitive tax structure.

Growth in incomes, buoyed by continued job growth and rising wages along with low interest rates, is projected to support consumer spending in Ontario. Recently, consumer spending has been lifted by positive wealth effects from increasing resale home prices that have likely offset the negative impact from declines in equity markets.4 Following estimated growth of 3.0 per cent in 2015, real household consumption is forecast to moderate to 1.9 per cent annually, on average, over the 2016 to 2019 period.

The Ontario housing market strengthened in 2015, with both resale activity and housing starts moving higher. The pickup in activity can be tied to lower borrowing rates, steady employment gains and growth in the number of households. Home resales are projected to move lower over the next few years, while price appreciation is forecast to moderate as rising interest rates, historically high valuations and mortgage debt temper healthy demographic-related demand. Growth in real residential construction is expected to decelerate from 5.5 per cent in 2015 to 1.9 per cent in 2016, before gradually rising to 2.5 per cent in 2019.

Risks to Ontario’s Economic Outlook

There are upside and downside risks to Ontario’s economic outlook. Taken together, risks surrounding the outlook appear to remain evenly balanced.

Sustained lower oil prices could provide a greater-than-expected boost to the Ontario economy through lower costs for businesses and households.

On the downside, uneven and uncertain global growth could further exacerbate volatility in the financial markets. This could dampen global investor sentiment and hinder investment activity in the province.

Despite a more favourable external environment, challenges remain for Ontario’s export sector. This partly reflects the loss of U.S. market share to Mexico and China, suggesting Ontario export growth to the United States may be less robust than experienced during past periods of currency depreciation. Furthermore, the U.S. dollar has appreciated against most currencies, limiting the competitive advantage Ontario has gained.

Ontario’s housing market also represents a risk to the economic outlook. In general, housing market corrections are triggered by a spike in interest rates or the unemployment rate. In the current outlook, interest rates are expected to increase moderately, while the unemployment rate is projected to continue improving steadily. As a result, Ontario’s average house-price appreciation is expected to slow.

Resale home-price appreciation has outstripped income gains in recent years, fuelling mortgage debt accumulation. As well, despite historically low mortgage rates, monthly carrying costs are modestly elevated relative to long-term trends. High levels of debt, combined with elevated resale prices, leave Ontario households potentially more vulnerable in the event of an economic downturn. Recent research from the Bank of Canada also highlights that the share of Canadian household debt held by highly indebted households has increased. These households are generally younger and have lower incomes, which make them more susceptible to an adverse economic shock.5

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 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.

Details of the Ontario Economic Outlook

The following table provides details of the Ministry of Finance’s economic outlook for 2015 to 2019.

TABLE 3.4 The Ontario Economy, 2014 to 2019
(Per Cent Change)
Real Gross Domestic Product Actual
Real Gross Domestic Product 2.7 2.5 2.2 2.4 2.2 2.0
Household Consumption 2.5 3.0 2.4 2.2 1.5 1.6
Residential Construction 0.4 5.5 1.9 1.4 2.1 2.5
Non-residential Construction 1.6 8.4 2.0 5.0 3.6 2.4
Machinery and Equipment 6.9 7.7 0.5 4.6 4.9 5.0
Exports 1.9 0.7 2.8 3.3 3.0 2.8
Imports 1.1 1.1 1.1 2.8 2.5 2.3
Nominal Gross Domestic Product Actual 2014 Projection 2015 Projection 2016 Projection 2017 Projection 2018 Projection 2019
Nominal Gross Domestic Product 4.1 3.6 4.0 4.6 4.2 4.0
Primary Household Income 3.5 3.3 4.5 4.4 4.2 4.2
Compensation of Employees 3.4 3.3 4.4 4.5 4.5 4.4
Net Operating Surplus — Corporations 12.7 2.1 3.7 8.5 5.7 3.9
Other Economic Indicators1 Actual 2014 Projection 2015 Projection 2016 Projection 2017 Projection 2018 Projection 2019
Retail Sales 5.0 4.7 4.8 3.7 3.4 3.2
Housing Starts (000s) 59.1 70.2 64.0 65.0 68.0 72.0
Home Resales 3.7 9.6 (2.9) (5.8) 2.0 3.8
Consumer Price Index 2.4 1.2 1.8 2.0 2.0 2.0
Employment 0.8 0.7 1.1 1.2 1.2 1.1
Job Creation (000s) 55 45 78 85 82 79
Unemployment Rate (Per Cent) 7.3 6.8 6.6 6.4 6.3 6.1
Key External Variables1 Actual 2014 Projection 2015 Projection 2016 Projection 2017 Projection 2018 Projection 2019
U.S. Real Gross Domestic Product 2.4 2.4 2.1 2.4 2.4 2.2
WTI Crude Oil ($ US/bbl.) 93 49 42 53 60 67
Canadian Dollar (Cents US) 90.5 78.2 72.0 75.5 81.0 83.0
Three-month Treasury Bill Rate2 0.9 0.5 0.5 0.8 2.2 2.8
10-year Government Bond Rate2 2.2 1.5 1.6 2.3 3.3 3.6
1 2015 are actuals except retail sales.
2 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 2015 and February 2016), 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 2016 Budget, the Minister of Finance met with private-sector economists to discuss their views on the economy. As well, three economic experts reviewed the Ministry of Finance’s economic assumptions in February 2016 and found the assumptions to be reasonable. The three experts are from the Policy and Economic Analysis Program at the Rotman Institute for International Business, Rotman School of Management, University of Toronto; the Centre for Spatial Economics; and the Conference Board of Canada.

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 2.3 per cent in 2016, 2.5 per cent in 2017, 2.3 per cent in 2018 and 2.1 per cent in 2019. For prudent fiscal planning, the Ministry of Finance’s real GDP growth projections are slightly below the average private-sector forecast.

TABLE 3.5 Private-Sector Forecasts for Ontario Real GDP Growth
(Per Cent)
  2016 2017 2018 2019
BMO Capital Markets (January) 2.2 2.3
Central 1 Credit Union (January) 2.7 3.1
Centre for Spatial Economics (January) 2.4 2.6 2.2 2.2
CIBC World Markets (January) 2.2 2.6
Conference Board of Canada (January) 2.3 2.3 2.1 2.1
Desjardins Group (January) 2.2 2.3 2.0 1.5
IHS Global Insight (January) 2.0 2.0 2.3 2.4
Laurentian Bank Securities (January) 2.4 2.5
National Bank (January) 2.0 2.0
RBC Financial Group (December) 2.5 2.7
Scotiabank Group (February) 2.2 2.7
TD Bank Financial Group (January) 2.2 2.0
University of Toronto (January) 2.3 2.8 2.7 2.2
Private-Sector Survey Average 2.3 2.5 2.3 2.1
Ontario’s Planning Assumption 2.2 2.4 2.2 2.0
Source: Ontario Ministry of Finance Survey of Forecasters (February 2, 2016).

Comparison to the 2015 Budget

The estimate of Ontario real GDP growth in 2015 is slightly lower than the 2015 Budget forecast. Economic growth in 2015 was moderated by a slow start to the year, reflecting a number of temporary factors including unusually harsh winter weather, closures at auto plants for retooling, and a west-coast port strike that adversely affected exports.

Key changes since the 2015 Budget include:

  • Slightly lower real GDP growth in 2015 and 2016, followed by marginally stronger growth in 2017 and 2018;
  • Lower nominal GDP growth in 2015 and 2016, but higher growth in 2017 and 2018;
  • Weaker-than-expected employment growth over the forecast period; and
  • Downward revisions to key external factors, including U.S. real GDP, oil prices, the Canadian dollar and interest rates.
TABLE 3.6 Changes in Ministry of Finance Key Economic Forecast Assumptions: 2015 Budget Compared with 2016 Budget
(Per Cent Change)
Real Gross Domestic Product 2.7 2.5 2.4 2.2 2.2 2.4 2.1 2.2
Nominal Gross
Domestic Product
4.2 3.6 4.2 4.0 4.2 4.6 4.1 4.2
Retail Sales 4.2 4.7 4.2 4.8 4.0 3.7 3.6 3.4
Housing Starts (000s) 61.0 70.2 65.0 64.0 69.0 65.0 70.0 68.0
Primary Household Income 3.9 3.3 4.3 4.5 4.4 4.4 4.2 4.2
Compensation of Employees 4.0 3.3 4.3 4.4 4.4 4.5 4.5 4.5
Net Operating Surplus — Corporations 5.0 2.1 4.8 3.7 4.7 8.5 4.4 5.7
Employment 1.1 0.7 1.3 1.1 1.4 1.2 1.3 1.2
Job Creation (000s) 78 45 93 78 99 85 96 82
Consumer Price Index 1.2 1.2 2.0 1.8 2.0 2.0 2.0 2.0
Key External Variables 2015p:
2015 Budget
2016 Budget
2015 Budget
2016 Budget
2015 Budget
2016 Budget
2015 Budget
2016 Budget
U.S. Real Gross Domestic Product 3.1 2.4 2.9 2.1 2.7 2.4 2.6 2.4
WTI Crude Oil ($ US/bbl.) 55 49 70 42 79 53 84 60
Canadian Dollar (Cents US) 79.5 78.2 80.0 72.0 85.0 75.5 89.0 81.0
Three-month Treasury Bill Rate1 (Per Cent) 0.6 0.5 1.1 0.5 2.5 0.8 3.4 2.2
10-year Government Bond Rate1 (Per Cent) 1.8 1.5 2.7 1.6 3.8 2.3 4.2 3.3
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 (October 2015 and February 2016) and Ontario Ministry of Finance.

1 Based on information available as of February 2, 2016.

2 These shares are based on Statistics Canada’s 2011 Ontario Input–Output Tables.

3 André Binette, Daniel de Munnik and Julie Melanson, “An Update — Canadian Non-Energy Exports: Past Performance and Future Prospects,” Bank of Canada Discussion Paper 2015–10 (October 2015).

4 Lise Pichette, “Are Wealth Effects Important for Canada?”, Bank of Canada Review, Spring 2004. The report highlights that consumer spending responds very little to changes in equity wealth, but is sensitive to changes in housing wealth.

5 Bank of Canada, “Financial System Review,” December 2015. A highly indebted household is defined as a household with a total debt-to-gross-household-income ratio of 350 per cent or higher.

Chart Descriptions

Chart 3.1: Shifting Global Economic Environment

This infographic shows key global economic developments and their impacts on Ontario’s economy.

The first half of the infographic describes the key global economic developments.  Over the past year and a half there has been a significant shift in the global economic environment. This includes, increased oil supply and weakening economic growth in emerging economies. It also includes solid economic growth in the U.S. and strengthening growth in some advanced countries. These developments and broader uncertainty about the global economic outlook have contributed to: oil prices declining from over $100 US per barrel to recently $30 US; the Canadian dollar declining by about 25 per cent relative to the US dollar; stock markets losing value; and lower interest-rate expectations.

The second part of the infographic describes global developments and Ontario’s economy. Steady U.S. economic growth, low oil prices and a weaker Canadian dollar are all conducive to Ontario’s economic growth. The impacts include: lower costs to consumers, with a 17.9 per cent decrease in gasoline prices in 2015; improvements in export competitiveness, with international merchandise exports up 10.5 per cent in 2015; an 8.9 per cent increase in international visitors in 2015; and strong housing market, with home resales up 9.6 per cent in 2015. However, higher import costs and weaker confidence could dampen the outlook: Fruit and vegetable prices increased 14.3 per cent year-over-year in 2015Q4; lower dollar also means rising import costs to consumers; higher travel costs for Ontarians have decreased trips abroad by 9.6 per cent in 2015; and lower confidence and increased competition can  limit investment — machinery and equipment down three straight quarters.

Return to Chart 3.1

Chart 3.2: Ontario Real GDP Growth Outpacing Canada

The bar chart shows annual real GDP growth for Ontario and Canada over the three years, 2013–2015. In 2013, Ontario’s growth of 1.3 per cent lagged Canada’s growth of 2.2 per cent. In 2014, Ontario’s real GDP growth rose to 2.7 per cent, outpacing the national average of 2.5 per cent for the first time since 2002. Ontario’s projected real GDP growth of 2.5 per cent in 2015 is expected to continue outpacing Canadian real GDP of 1.2 per cent in 2015.

Return to Chart 3.2

Chart 3.3: Ontario’s Strong Recovery from the Recession

Two charts combined to show that Ontario’s economy has fully recovered from the 2008–09 recession. The first chart, a line chart, tracks quarterly Ontario real GDP per capita. This chart shows that real GDP per capita in the second quarter of 2008, just prior to the recession, stood at $47,200. As of the third quarter of 2015, Ontario real GDP per capita had risen to $48,400.

The second chart tracks monthly employment and the unemployment rate for Ontario from January 2008 to January 2016. Employment shows the pre-recession peak of 6.65 million in October 2008, and then declines to the recession low of 6.38 million in June 2009. Employment steadily increased after that point, with employment passing the pre-recession peak in mid-2011. Currently, employment in Ontario is near 7.0 million. The unemployment rate line shows a sharp increase during late 2008 and early 2009, peaking at 9.6 per cent in June 2009. Since then, the unemployment rate has trended down, standing at 6.7 per cent in January 2016.

Return to Chart 3.3

Chart 3.4: Ontario Government’s Net Fiscal Contribution

This chart shows Ontario government’s net fiscal contribution in billions of dollars from 2009–10 to 2014–15.

Net fiscal contribution estimates the amount spent in the economy from program and capital spending. This chart shows net fiscal contribution from supporting programs and services (i.e., overall balance excluding interest on debt) and capital spending.

The chart shows that the net fiscal contribution of the Ontario government was $19.5 billion in 2009–10. Subsequently, the government reduced the amount of stimulus from program spending but continued to spend on capital.

Return to Chart 3.4

Chart 3.5: Key Ontario Economic Indicators Outpacing Canada in 2015

The bar chart shows the performance of key economic indicators in Ontario and the rest of Canada in 2015. Housing starts increased 18.6 per cent in Ontario, compared with a 3.7 per cent decline in the rest of Canada. Home resales increased 9.6 per cent in Ontario, compared with a 2.4 per cent increase in the rest of Canada. Wholesale trade advanced 6.8 per cent in Ontario, compared with 1.5 per cent in the rest of Canada. Retail trade increased 4.5 per cent in Ontario compared with 0.9 per cent in the rest of Canada. Average weekly earnings increased 2.5 per cent in Ontario, compared with 1.3 per cent in the rest of Canada. Manufacturing sales advanced 1.6 per cent in Ontario, compared to a decline of 4.4 per cent in the rest of Canada. Private-sector employment increased 0.5 per cent in Ontario, compared with 0.5 per cent in the rest of Canada.

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Chart 3.6: Unemployment Rate Declining in Ontario

The line chart shows the unemployment rate for Ontario and Canada from 1995 to early 2016. From 1995 to 2005, Ontario’s unemployment rate was lower than the Canadian rate. However, because of the global recession, Ontario’s unemployment rate rose from 6.3 per cent in 2006 to 9.1 per cent in 2009, and was above the Canadian rate from 2007 to 2014. In 2015, Ontario’s unemployment rate declined to 6.8 per cent, below the Canadian rate of 6.9 per cent.  In January 2016, Ontario’s unemployment rate was 6.7 per cent, below Canada’s rate of 7.2 per cent.

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Chart 3.7: Employment Gains Concentrated in Full-Time, Private-Sector, Above-Average Wage Industries

The bar chart shows different characteristics of Ontario employment gains since June 2009. Total employment increased by 608,000 since June 2009, with full-time employment up by 617,000, while part-time employment declined by 9,000. Private-sector employment increased by 439,000, while public-sector employment rose by 77,000 and self-employment was up by 92,000. Employment in above-average wage industries rose by 463,000 compared with a 145,000 employment increase in below-average wage industries.

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Chart 3.8: Unemployment Rates Down in All Ontario Regions

The bar chart shows unemployment rates for Ontario regions in 2009 and 2015. Unemployment rates for all regions were lower in 2015 than in 2009. Ontario’s unemployment rate was 9.1 per cent in 2009 and 6.8 per cent in 2015. The North region unemployment rate declined from 9.0 per cent in 2009 to 7.2 per cent in 2015. The East region had an unemployment rate of 6.8 per cent in 2009 and 6.7 per cent in 2015. The GTA unemployment rate was 9.6 per cent in 2009 and 7.1 per cent in 2015. The Southwest region unemployment rate fell from 10.3 per cent in 2009 to 6.9 per cent in 2015. The Central region unemployment rate was 9.1 per cent in 2009 and 5.9 per cent in 2015.

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Chart 3.9: Ontario Exports Up Strongly

The double bar chart illustrates the change in Ontario nominal exports during 2003–2013, expressed as an average annual growth rate over the 10-year period, compared to 2014. Total Ontario exports rose 5.3 per cent in 2014, outpacing the 2003–2013 average annual growth rate of 1.5 per cent. Ontario’s exports to other countries (+7.1 per cent in 2014 compared to +0.7 per cent over the 2003–2013 period) have grown at a faster pace than exports to other provinces (+2.0 per cent in 2014 compared to +3.2 per cent over the 2003–2013 period) in 2014, which is the opposite of the direction of growth during 2003–2013. Ontario’s goods exports have grown 7.1 per cent in 2014, following no growth (on average) during 2003–2013. Exports of services rose 2.2 per cent in 2014, after increasing 4.8 per cent during 2003–2013.

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Chart 3.10: Emerging Markets Weighing on Global Growth

There are two charts. On the left-hand side a bar chart shows real GDP growth for the world, emerging markets and China over the 2000–2014 period and projections for 2015, 2016 and 2017. Real GDP growth for the world averaged 3.9 per cent from 2000 to 2014 and is projected to grow by 3.1 per cent in 2015, 3.4 per cent in 2016 and 3.6 per cent in 2017. Real GDP growth for emerging markets averaged 6.0 per cent from 2000 to 2014 and is projected to grow by 4.0 per cent in 2015, 4.3 per cent in 2016 and 4.7 per cent in 2017. Real GDP growth for China averaged 9.7 per cent from 2000 to 2014 and is projected to grow by 6.9 per cent in 2015, 6.3 per cent in 2016 and 6.0 per cent in 2017.

On the right-hand side, a line chart shows WTI oil prices and metal and mineral prices from 2000 to 2016. Prices have been indexed to 100 in January 2000. WTI oil prices showed steady growth over the 2003 to 2006 period, growing from about 100 to 300. In 2008, oil prices spike to an indexed level of about 520, before falling sharply back to about 120 by the end of the year. Prices climb through to mid-2014, reaching levels around 400. Since then, prices have fallen sharply, with the latest data point at about 115. Metal and mineral prices follow a similar, but more muted, pattern. Indexed levels reached around 270 in 2008 before falling back below 200 by the end of the year. Prices climbed to 300 in 2011 but have since been on a downward trend, currently sitting at about 180.

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Chart 3.11: Volatility in Commodity and Financial Markets

There are two charts. On the left-hand side, a line chart shows the Canadian dollar and WTI oil prices from January 2014 to February 2016. The two lines follow each other closely, with the dollar starting out above 90 cents US and WTI oil prices at about $95 US per barrel. Since mid-2014 both lines have declined, with the dollar currently at about 72 cents US in February 2016 and oil at about $32 US per barrel.

On the right-hand side, a line chart show the S&P 500 and S&P/TSX indexed to 100 on January 2, 2014. The S&P 500 climbed pretty steadily through to July 2015 and then dipped down in August and September of 2015 before recovering. The S&P 500 then fell sharply at the beginning of 2016 to an indexed level of about 100, before partially recovering. The S&P/TSX was at an indexed level of over 110 in mid-2015 before beginning to trend downwards. A sharp decline in early 2016 brought the level below 90, before partially recovering.

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Chart 3.12: Lower Oil Prices Providing Savings in Ontario

The bar chart shows the estimated savings from lower oil prices in 2015. Savings are estimated at $3.8 billion for industry, $2.7 billion for households and $0.2 billion for others, for a total savings of $6.6 billion. A note reads: Savings compare average prices in 2015 to 2014, adjusted for the exchange rate. Numbers may not sum to total due to rounding. A small share of savings also accrued to government and the non-profit sector (“Other”).

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Chart 3.13: Lower Canadian Dollar Having an Impact

The line chart compares the U.S.-Canada exchange rate with visits from U.S. travellers to Ontario and visits by Ontarians to the U.S. from the first quarter of 2011 to the third quarter of 2015. The number of visits is indexed so the first quarter of 2011 is equal to 100.

The chart shows the visits by Ontarians to the U.S. increasing modestly to almost index level 110 by the middle of 2013 before declining to the current level below 85. Visits from the U.S. are little changed between 2011 and the end of 2014 before increasing sharply in the second and third quarters of 2015, ending the time period above index level 110.

Over this period, the exchange rate fell from around 102 cents US in the first quarter of 2011 to almost 75 cents US in the third quarter of 2015.

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Chart 3.14: Solid U.S. GDP Growth to Continue

The bar chart shows U.S. real GDP growth from 2010 to 2019. U.S. real GDP increased 2.5 per cent in 2010, 1.6 per cent in 2011, 2.2 per cent in 2012, 1.5 per cent in 2013 and 2.4 per cent in 2014 and 2015. According to Blue Chip Economic Indicators, U.S. real GDP is projected to grow by 2.1 per cent in 2016, 2.4 per cent in 2017,2.4 per cent in 2018 and 2.2 per cent 2019.

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Chart 3.15: Ontario Economic Growth Expected to Broaden

The bar chart shows the composition of Ontario growth over the outlook (2016 – 2019). The overall economy is expected to average real GDP growth of 2.2 per cent, led by business investment and exports with average annual increases of 3.4 per cent and 3.0 per cent, respectively. Average growth between 2016 and 2019 is expected to be 1.9 per cent for household spending, 1.1 per cent for government, 2.0 per cent for residential investment and 2.2 per cent for imports.

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Chart 3.16: Ontario’s Labour Market Expected to Improve

This combined bar and line chart shows Ontario’s employment growth and unemployment rates from 2013 to 2019. Bars show employment growth of 1.8 per cent in 2013, 0.8 per cent in 2014 and 0.7 per cent in 2015. Employment is forecast to grow by 1.1 per cent in 2016, 1.2 per cent in 2017 and 2018, and 1.1 per cent in 2019. A line shows the unemployment rate falling from 7.6 per cent in 2013 to 7.3 per cent in 2014 and 6.8 per cent in 2015. The unemployment rate is forecast to decline further to 6.6 per cent in 2016, 6.4 per cent in 2017, 6.3 per cent in 2018 and 6.1 per cent in 2019. A text box notes that over the 2016 to 2019 period, 323,000 net new jobs are projected to be added.

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Chart 3.17: Exchange-Rate-Sensitive Exports Already Benefiting from Lower Canadian Dollar

The line chart compares the growth of exchange-rate-sensitive exports and other non-sensitive exports in nominal terms, indexed to their respective values in January 2014. In December 2015, exchange-rate-sensitive exports grew 3.4 per cent more than exports that are not considered to be sensitive to fluctuations in the exchange rate. Despite the difference in growth rates, both types of exports have trended upwards since February 2015.

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Chart 3.18: Industry Operating Close to Full Capacity, Expected to Trigger Increased Investment Activity

The line chart shows quarterly Ontario total industry capacity utilization rates from 2002 to the third quarter of 2015. The rate is within a range of 82 per cent and 86 per cent from 2002 to 2007, but then declines sharply to about 72 per cent in the second quarter of 2009. The rate then recovers back to above 80 per cent by 2011, and by the third quarter of 2015 stands at about 83 per cent. Accompanying text reads, “Businesses were left with underused facilities following the recession, lowering investment needs. With demand now rising and facilities operating at full capacity, more investment is expected to follow.”

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Chart 3.19: Consumer Spending Expected to Be Supported by Gains in Employment and Wages

The bar chart shows average annual per cent changes over the 2016 to 2019 period. Employment is forecast to grow by an average of 1.1 per cent, and wages and salaries are projected to average gains of 4.5 per cent, contributing to real household consumption growth of 1.9 per cent.

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Chart 3.20: Demographic Fundamentals to Support Housing Starts over the Medium Term

This combined line and bar chart compares the annual level of household formations in Ontario with the annual level of housing starts in Ontario, between 2011 and 2019. The line, representing household formations, begins at 66,000 in 2011 and ends at 78,000 household formations in 2019. The bars, representing housing starts, begin at 68,000 housing starts in 2011 and end at 72,000 housing starts in 2019. Over the historical period, 2011 to 2015, household formations averaged 72,100 annually, compared with housing starts, which averaged 67,000 annually. Over the forecast period, 2016 to 2019, household formations are expected to average 77,200 annually, compared with housing starts, which are expected to average 67,300 annually.

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Chart 3.21: Increasing Competition May Limit Growth Prospects

There are two charts. On the left-hand side, a bar chart shows the share of U.S. goods imports from Ontario, Canada, China and Mexico in the years 2004 and 2014. There have been declining shares in Ontario (from eight per cent in 2004 to five per cent in 2014) and Canada (from 17 per cent in 2004 to 15 per cent in 2014). There have been rising shares in China (from 13 per cent in 2004 to 20 per cent in 2014) and Mexico (from 11 per cent in 2004 to 13 per cent in 2014).

On the right-hand side, a line chart shows the Canadian dollar and Mexican peso indexed to 100 in January 2004 over the January 2004 to January 2016 period. Values over 100 represent an appreciation versus the U.S. dollar, and values below 100 represent a depreciation vs. the U.S. dollar. The Canadian dollar rose to over 120 by June 2007 and remained above 120, for the most part, through to mid-2014, with the main exception of a dip down to close to 100 in late 2008 to mid-2009. After mid-2014, the Canadian dollar has steadily declined and is currently at an index level of about 91. The Mexican peso remained around 100 until mid-2008, when it fell sharply to about 80. The peso stayed between 80 and 100 through to late 2014, and has since fallen to about 60.

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Chart 3.22: Mortgage Carrying Costs Modestly Elevated Relative to Long-Term Trends

The line chart shows the mortgage carrying cost as a share of disposable income per household in Ontario from 1981 to 2015. The line increased to a high of almost 40 per cent in 1990 and then declined to a low of 20 per cent in 1998. It has since trended higher, reaching 29 per cent in 2015. The long-term average is 26.6 per cent.

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Change in Household Spending 2015 versus 2014

This bar chart shows that, based on spending patterns in 2014 and movements in consumer prices over the past year, Ontario households, would on average, have paid $237 more for food bought in stores and saved $457 on gasoline.

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