As Canada looks to retool its economy after years of relying on the energy sector, Ontario hopes to recapture some of its heft as the country’s economic powerhouse.
Canada’s most populous province is on track to grow about 2 per cent this year, outpacing the projected 1.1-per-cent gross domestic product increase for the country.
“Ontario will be a strong contributor to Canada’s growth. It’s a good thing that we have a diverse economy,” said Pedro Antunes, deputy chief economist with the Conference Board of Canada.
“But to suggest that Ontario is going to have a booming economy, we are not quite there yet,” he said.
The rout in commodity prices dragged Canada into a mild recession earlier this year, triggering thousands of job cuts and souring the nation’s outlook.
For four consecutive years, Alberta’s output more than doubled the national average thanks to soaring oil prices. Saskatchewan also bolstered growth due to strong demand for potash, a crop nutrient that is plentiful in the Prairies.
The good times stopped when a glut of commodities hit the market just as demand started to wane. Now, Alberta’s economy is expected to contract for the first time since the Great Recession and Saskatchewan’s output is forecast to be flat.
That has put Ontario in one of the leading positions, albeit only by default and behind British Columbia, which is expected to climb more than 2 per cent.
“It will be more by default than design,” Craig Wright, Royal Bank of Canada’s chief economist, said of Ontario’s new-found status.
Ontario’s Liberal government is due to release its fall economic statement on Thursday. Finance Minister Charles Sousa is expected to detail progress on reducing the province’s massive $8.5-billion budget deficit. He is also expected to highlight ongoing billion-dollar infrastructure projects as key economic stimulus.
The bulk of Ontario’s economy is driven by the services sector, which shielded it from the 50-per-cent drop in oil prices.
The services industries, which include financial services, health care and transportation, has underpinned Canada’s economy so far this year. A weak loonie and the potential lowering of trade barriers with countries such as Japan is expected to help.
“There is strong potential for Ontario to take a leadership position once again. But there are some changes that have to occur,” said David Watt, chief economist with HSBC Bank Canada. “The opportunity is there. … We have to put in place the structure for small businesses to become key drivers of innovation.”
Manufacturing, another key component of Ontario’s economy, has been highlighted as another potential driver for the province.
Ontario accounts for half of the country’s manufacturing sector. Though jobs in the manufacturing industry, which are typically well paid, have been steadily disappearing over the past decade. Meanwhile, factory sales have remained relatively flat over the same period at $51-billion. In Ontario, factory sales are up 0.5 per cent in the 12 months ending in September.
The softer Canadian dollar and lower energy prices have been touted as beneficial to the industry. Though it has yet to spur huge amounts of private investment. The bulk of the private capital has ended up in China, Mexico and southern U.S. states, although Ford Motor Co. and FCA North America are investing funds in Ontario.
“The investment dollars coming from the private sector have not flowed back into Ontario,” Mr. Antunes said. “This is a concern because it is private investment that drives future output and future employment. If we don’t see the private sector choosing to put their money into Ontario, even though the currency has depreciated, there is an issue there.”