Canadian Treasurer

November 24, 2010

Ontario economy will slow to 2.4 per cent growth next year, Central 1 predicts

TORONTO — Ontario’s economy will grow more slowly in 2011 than this year, dragged down by the continuing slump in the U.S., according to a new economic forecast released today by Central 1 Credit Union.

The province’s Gross Domestic Product will rise 2.4 per cent in 2011, compared to 3.7 per cent this year, with a slight uptick in 2012 to 2.5 per cent. Looking at the next three years, Central 1 says the auto manufacturing sector will lead Ontario’s growth as it rebounds from deep recession lows.

“The auto industry will surge ahead more than 30 per cent from the depths it fell to in 2009,” said Helmut Pastrick, Central 1’s Chief Economist. “Plummeting vehicle sales and plant closings last year marked a low point for the sector but we’re seeing these factors reversed through 2013.”

Government spending will slow as the province struggles with deficits run up to counteract the recession and the end of federal stimulus spending, but business investment will be helped by lower taxes due to the Harmonized Sales Tax (HST) and the higher value of the Canadian dollar, which reduces the price of imported machinery and equipment.

The housing market will also undergo a shift to higher sales volume and prices. Ontario house sales will continue to rise early in 2011 before slowing, while prices will hit record highs next year and in 2012 and 2013.

The MLS® residential average sale price will hit $345,000 in 2010 up 8 per cent and will rise another 6 per cent in 2011 to nearly $366,000.

“Record low mortgage rates and the improving economy have led to three consecutive months of increased sales,” Pastrick noted. “Pent-up demand and the recent price declines will continue to drive the market forward.”

On the jobs front, Pastrick expects the unemployment rate to decline from the current 8.6 per cent to 8.3 per cent in 2011, 7.6 per cent in 2012 and drop below 7 per cent in 2013. Thousands of new jobs will be created, but the large number of people seeking work will keep the unemployment rate high.

Northern Ontario should experience relatively strong growth as both forestry and mining are expected to rebound from their 2009 lows. High gold prices will encourage production, while the end of a labour dispute at Vale Inco in Sudbury will boost nickel supplies. Last week Vale Inco announced about $3.4 billion in expenditures are slated for Ontario to upgrade mining and processing facilities at the company's century-old operations in Sudbury.

Asian economic performance is of increasing importance to the global economy and growth prospects for China look to remain between 8 per cent to 10 per cent a year. China’s demand for metals and coal will lift those prices while lumber prices are heavily influenced by U.S. demand.

Overall, Canada’s economic growth generally mirrors the U.S. through 2013 although at a higher rate of growth. “The most significant difference between Canada’s economy and the U.S. are the stronger consumer and business investment sectors,” said Pastrick.

Central 1’s forecast expects the Canadian dollar will break through parity with the U.S. dollar and stay above parity at times during 2011.

“Improvements in U.S. household balance sheets, credit conditions, and the labour market are underway and will generate more demand in 2012 and 2013,” Pastrick said.



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