By Robert Hogue, Senior Economist
Let The Games Begin
The economic expansion in Ontario appears to be on track to accelerate further in 2015 after it gained noticeable momentum in 2014. Solid merchandise export activity remains a primary engine propelling the expansion this year and a boost to tourism from the Greater Toronto Area hosting the Pan Am and Parapan Am Games this summer will add a strong services component. An impressively dynamic household sector in the early months of 2015 also points to consumer spending and housing contributing much to the expansion this year. That being said, job creation to date has been somewhat weaker than we anticipated, which prompted us to revise our real GDP growth forecast slightly to a still-brisk 2.8% in 2015 from 3.3% in the March issue of Provincial Outlook. This revised rate remains stronger than the 2.4% that we now estimate for 2014. Moreover, we believe that part of the growth we no longer see taking place in 2015 will be delayed into 2016 instead, and as such we have revised our forecast for next year upward to 3.1% from 2.7% previously.
Exports Face Bright Prospects
While retooling downtime hampered production at two of the province’s auto assembly plants and unusually poor weather south of the border once again posed challenges for exports into the United States in the first quarter of 2015, Ontario’s exporters continued to operate at high levels. In the first three months of this year, nominal merchandise exports were 9.4% above year-ago levels, with strong rises registered by major export categories, including industrial machinery, electrical and electronic products, motor vehicle and parts, and consumer goods. Prospects for Ontario’s export sector continue to be bright thanks to strengthening US demand (we expect first quarter stalling in the US economy to be reversed in coming quarters) and improved competitiveness arising from a lower value of the Canadian dollar. Furthermore, the pending completion of retooling work in the auto sector will provide a boost to motor vehicle production and exports later this year. On the services side, the Pan Am and Parapan Am Games—the worlds’ third largest multi-sport games—to be held in the GTA in July and August will give a significant boost to tourism in the province.
Modest Job Creation Not Holding Back Ontario Households Much
Indicators suggest that Ontario households have felt good enough about their outlook to make major purchases so far this year. This was certainly the case for buying existing homes, where units sold tracked more than 12% above year-ago levels during the first four months of 2015. In all likelihood home resale activity might have been even stronger had more homes been available for sale in major markets such as Toronto. In turn, supercharged housing activity has fuelled Ontario’s retail trade segments like furniture, appliances and building materials.
Such vigour demonstrated by households is somewhat surprising considering the rather lacklustre performance of Ontario’s labour market to date. Employment growth has been anaemic at 0.5% so far this year, with the increase coming in the form of part-time jobs. Also surprising was the strength of housing demand in the face of sharply weakening net migration flows and slowing population growth. While we expect migration flows to begin recovering in the period ahead—partly at the expense of Alberta—demographic factors likely will place upper limits on future housing activity growth in the province.