BMO Financial Group
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BMO Financial Group

October 16, 2014 09:16 ET

BMO Economics: Stronger U.S. Demand, Lower Dollar to Support Ontario Growth

- Real GDP growth of 2.0 per cent expected in 2014, 2.4 per cent in 2015 (Canadian real GDP growth of 2.3 per cent expected in 2014, 2.4 per cent in 2015)

- Stronger performance expected for exports and manufacturing

- Housing market remains strong in Toronto

TORONTO, ONTARIO--(Marketwired - Oct. 16, 2014) - Ontario's economy is on the verge of picking up, boosted by stronger U.S. demand and a weaker Canadian dollar, according to the Provincial Monitor report released today by BMO Economics. Real GDP in the province is on pace to expand 2.0 per cent this year, up from less than 1.5 per cent in each of the prior two years, before picking up further to 2.4 per cent in 2015.

"The combination of stronger U.S. demand, a weaker loonie and now lower oil prices plays right into the hands of exports and manufacturing, and of the economy that has lagged so far this cycle," said Robert Kavcic, Senior Economist, BMO Capital Markets. "Estimates suggest that a 10 per cent decline in the Canadian dollar can lift real GDP growth by half a percentage point per year over two years, though the impact might be somewhat smaller now given a declining manufacturing share and loss of capacity since the Great Recession."

Mr. Kavcic noted that longer-term challenges still remain, with relatively high labour costs versus Mexico and the Southern U.S continuing to pose challenges for the auto sector. "High electricity rates are another challenge, with after-tax average prices paid by large consumers in Toronto well above those paid in competing cities such as Montreal, Winnipeg, Chicago and Detroit."

Meanwhile, the housing market continues to perform well in Toronto. "Resale prices continue to push record levels, especially in the detached segment, and sales are running at the high end of the past-decade range," said Mr. Kavcic. "Housing starts are also settling in at or slightly below levels required to satisfy demographic demand, though the condo market could be tested as the record 56,000 units currently under construction come to completion. Beyond Toronto, local market conditions are much softer-that includes Ottawa, where a prolonged period of federal fiscal restraint has weighed."

Ontario's labour market performance has softened, with employment up a modest 0.6 per cent year over year in the third quarter of 2014. The jobless rate fell to a cycle low of 7.1 per cent in September, but some of the decline is attributable to a drop in the prime-aged participation rate.

"Customers in South Western Ontario have told us that they remain optimistic about the state of the economy, which has been brought on by a strong export and manufacturing sector - the real 'bread and butter' of this region," said Curtis Scragg, Senior Vice President, South Western Ontario Division, BMO Bank of Montreal.

Sandra Henderson, Senior Vice President, Eastern Ontario Division, BMO Bank of Montreal, added, "Ahead of Small Business Month, BMO conducted a survey which revealed that one-quarter of Ontario business owners plan to invest more in their business heading into 2015, which highlights the confidence amongst entrepreneurs."

The Greater Toronto Area

"The housing market in Toronto continues to perform well, with many of our clients benefiting from the increased demand for infrastructure - including schools, hospitals, parks, etc. - leading to a greater need for local contractors and other skilled trades," said Andrew Auerbach, Senior Vice President, Greater Toronto Area, BMO Bank of Montreal. "This need for infrastructure, coupled with the 2015 Pan American Games coming to the city in mid-2015, has created an attractive market for our commercial clients."

The full Provincial Monitor can be downloaded at www.bmocm.com/economics.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified financial services organization based in North America. The bank offers a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers. BMO Financial Group had more than $586 billion in total assets and approximately 47,000 employees at July 31, 2014.

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