Central 1 report shows 7 percent GDP loss in Ontario
A new report issued by financial analysts Central 1 suggests that Ontario’s economy will contract by 7.4 percent in 2020 due to the COVID-19 pandemic.
The organization’s latest economic analysis for the province forecasts poor business conditions will continue through the middle of the year before bouncing back in 2021. GDP next year is forecasted to grow at 5 percent, followed by 2.6 and 2.5 percent in 2022 and 2023.
“This contraction will be driven by sizeable trade exposures in tourism, new car production, agriculture and diminished domestic consumption in housing and retail,” said regional economist Edgard Navarrete.
A number of factors are constraining the province’s economic growth. Population growth due to immigration, for example, is stalled because of border restrictions. Central 1 sees Ontario’s population growing by 1.2 percent in 2020, and ranging between 1 percent and 1.3 percent over the next three years.
Small businesses are also carrying a disproportionate share of the economic effects of the pandemic. The Central 1 report suggests that more than 77 percent of job losses in Ontario have occurred in operations with 99 or fewer employees. Larger businesses have also been affected, but are more likely to be able to survive.
The province has lost one million jobs and its unemployment rate ballooned from 5.2 percent in January to 11.3 percent by April.
The report also says that the province’s motor vehicle manufacturing sector will remain challenged through to 2023. Output there is expected to fall by 19.3 percent this year
“New car production is a key sector in Ontario, employing a sizeable share of the labour force and accounting for a substantial share of GDP,” said Navarrete. “The auto sector was facing headwinds prior to the pandemic as the General Motors plant in Oshawa began winding down as a result of waning demand domestically and internationally, especially in the U.S. which is a key market for Ontario vehicles.”
Central 1 sees construction and housing growth similarly constrained this year. It forecasts that construction growth will be bound by slowdowns in residential and non-residential investments—particularly as many businesses rethink big investments. It forecasts drops in retail sales of 10.6 percent this year, followed by growth of 7.7 percent in 2021 and 4.4 percent in 2022. These patterns should be reflected in construction opportunities.
Ontario’s housing market is set to remain frozen for half the year, gradually recovering over the back half of 2020.
“Even with a strong surge in activity expected in the second half of 2020 when buyers and sellers are once again able to close on deals, a sales contraction of between 10 and 20 percent is likely in the home ownership market in 2020,” said Navarrete.
The glimmer of hope for Ontario is that the province is re-opening its economy. Twenty-four of the province’s 34 public-health regions—excluding the Greater Toronto Area, Hamilton, the Niagara region, Windsor and Haldimand-Norfolk—are now entering the second phase of Ontario’s recovery plan.
“It is likely that April and May data will be the trough from which a tempered and uncertain recovery begins,” said Navarrete.