Central 1 Credit Union

Central 1 Credit Union

April 07, 2011 05:00 ET

Ontario's Slow Growing Economy Will Gain Momentum by 2014, Reaching 2.9 Per Cent Growth, Central 1 Chief Economist Forecasts

TORONTO, ONTARIO--(Marketwire - April 7, 2011) - Ontario's economy will grow slowly over the next few years as it gradually recovers from the recession and unemployment will remain high, according to the Ontario Economic Forecast 2011-2014, released today by Central 1 Credit Union.

"Ontario's economy will grow by about 2.7 per cent this year, compared to 3 per cent last year," says Helmut Pastrick, Central 1's Chief Economist. "That slower rate of growth will continue in 2012, dropping to 2.6 per cent in 2013 before rising to 2.9 per cent in 2014."

Central 1 expects unemployment will slowly decline, remaining above 8 per cent this year, but eventually falling to 6.5 per cent in 2014, which will be a bit above the national forecast of 6.3 per cent in 2014.

Total income generated in the economy will increase by an average 5.1 per cent annually with labour income forecast to grow 4.4 per cent. The declining but high unemployment rate will keep wage increases to just below the inflation rate for most of the forecast period.

Domestic spending is the main growth driver in the province, led by investment spending, with moderate spending by consumers.

Government investment spending will drop noticeably this year with the ending of its fiscal stimulus, while government spending on goods and services grows at a low rate in order to deal with deficits at the federal and provincial levels. The trade sector continues to post large deficits throughout the forecast.

"The gains forecast in private domestic spending and exports for 2011 and 2012 won't be enough to fully offset the absence of fiscal stimulus spending that boosted the economic recovery in 2010," Pastrick continues.

Highlights of the report:

  • Business investment spending stands out as the most robust sector of the economy, growing at an average 6 per cent annual rate during the forecast period.
  • Rising oil prices are putting a brake on the province's economic recovery, Pastrick says.
  • House prices and sales are likely to remain stable until 2013 when growth in income, jobs and population will spur sales and prices.
  • Corporate profits will continue to rebound, but not as rapidly as in 2010. Inflation will spike higher this year due to energy and food prices, but will settle down in the following three years to just above 2 per cent a year.
  • The loonie will remain above par with the U.S. dollar, reducing the province's exports until 2014 when a declining dollar will stimulate GDP growth to 2.9 per cent.
  • The loonie will start to decline once the U.S. begins raising interest rates for the first time since the financial crisis.

"Ontario's trade deficit is forecast to widen each year as moderate export growth will not be enough to offset rising imports," Pastrick says. "Canada's high currency and slow growth in the U.S. will dampen exports. It will take time for companies to diversify to new markets and products."

Pastrick is one of the private economic forecasters the province includes in its budget planning.

The full report, Ontario Economic Forecast 2011-2014, is available here.

Central 1

Central 1 is the central financial facility and trade association for the B.C. and Ontario credit union systems. Central 1 represents a consumer-oriented, full-service retail financial system that serves 2.9 million members and holds $70 billion in assets and is owned primarily by its member credit unions, 45 in B.C. and 119 in Ontario.

With offices in Vancouver, Mississauga, and Toronto, Central 1 provides a wide range of services such as liquidity management, direct banking, and flexible payment service solutions. For more information, visit www.central1.com.

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