Ontario economy no longer a laggard
The report calls for Ontario's economy to grow by 2.8 per cent next year, behind only that of Alberta. In 2016, real GDP growth is forecast at 2.4 per cent, but still above the national average.
"From manufacturing shipments, to domestically driven signposts in retailing, wholesaling and homebuilding, Ontario has seen a notable resurgence, shifting from a perennial trailer to among the better performing regions of the country," says Avery Shenfeld, chief economist at CIBC, who coauthored the report with senior economist, Warren Lovely.
"Employment hasn't caught fire, but should respond at some point to firming output."
Mr. Shenfeld notes that historically, Ontario's real GDP has had the tightest correlation to U.S. economic activity, but after years of plant exits, capacity use has actually tightened in the face of demand gains. "Ontario needs to cultivate growth sectors, rebuild capacity and win the battle for new facilities.
"Our call for the Bank of Canada to significantly lag the U.S. Federal Reserve in rates hikes next year, and a resulting depreciation of the loonie to roughly 85 cents U.S., should reposition the province as a more cost-competitive location. Lower federal/provincial corporate tax rates, the shift to the HST, and a $2.5 billion fund set up by the province to court direct investment, could be further enticements."
The report notes that Ontario's economy has underperformed the national average dating all the way back to the 2002-2007 pre-economic crisis period. The CIBC economists are calling for Ontario to match national growth in 2014 at 2.3 percent and move slightly ahead in each of the next two years. This forecast would top estimates and improve the provincial government's bottom line.
"All told, Ontario could have an additional $4-5 billion accumulated over two years that could be used to either exceed targets for deficit reduction or avoid the full burden of what rating agencies have judged to be tough-to-meet spending constraints," says Mr. Shenfeld.
"The extra room captures published budget sensitivities to nominal GDP divergences, and obviates the need to dip into the $1 billion in reserves and $0.5 billion in contingencies set aside this year, and the $1.2 billion reserved for 2015/2016." ■