Economic recovery in Ontario set to rise above national median

On the same day Canadian Prime Minister Stephen Harper almost pronounced the recovery to be in full swing, specific reports cementing positive trends within Ontario were also published. The overall tone of consolidation and strength although tempered is in sharp contrast to the last few years, and it’s also looking more apparent with each new report that the recovery in Canada is gaining traction far more more rapidly than within other markets in Europe or North America. Harper cautiously commented in Parliament today:

“Canada’s economy, unlike most, is already beginning to create some net new jobs, signs of a recovery do not mean it’s time to ‘declare success and relax’. The lesson from the crumbling banks and budgets elsewhere is that there is never a time that a government can afford to take its hands completely off the wheel of the economy, no matter how smoothly we’re riding.”

Finance minister released the new budget, highlights of which included a reduction of the overall deficit from c$53.8 billion to c$49.2 billion. I also express that continued observation of the exchange rate is needed, recent trading versus the US dollar ranging between $1.022-$1.035 hence stability seems to have arrived in the range of $1.02-$1.08 which has been the case since the beginning of the year (per the graph below).

A word of warning for business owners, for the first time in more than a year rumbles of an interest rate hike potentially in Q3 (more likely Q4) are being rumoured. To return to facts rather than speculation the overall rate of growth for the 4th quarter of 2009 clocked in at 5.0% which exceeded the forecast of 3.3%

Focusing on Ontario the overall good news this week continues. RBC economics predicting growth of  3.3% for the province in 2010 with a slight increase to 4.1% in 2011. To better gauge those numbers both place above the national average for each year according to the same reports.

“Ontario’s economy appears to be finally emerging from last year’s tough recession with the pace of recovery accelerating in the past few months, increased activity in the housing sector and greater motor vehicle production were among the factors that led to the return to positive economic growth over the second half of last year.”          Craig Wright, chief economist, RBC

The same report cites that the construction sector will carry the increases in 2010 as spending begins to move toward levels not seen since prior to the recession. Perhaps at the thin edge of extreme optimism is a recent survey by Statistics Canada, construction expenditures are anticipated to grow significantly by 24 per cent this year by public administrations in Ontario.

New housing growth of some 28% versus 2009 is expected to drive these numbers as total units being built pegged at 64,200 units this year, versus 50,100 last year. Analysts suggest Spring will show a rush of new home construction prior to the introduction of the harmonized sales tax in July . Although the HST will result in certain exempt products and services being taxed at the provincial level, the feeling is that the change may result in significant long-term benefits that make the tax system more economically efficient in Ontario thereby lowering the cost of doing business in the province.

The RBC Economics Provincial Outlook assesses the provinces according a mixture of economic data and aggregates. Full reports are available here.