May 4th - 2011

ON THE MARKETS: Ontario economy set to grow in 2011

Ontario’s economy has picked up and posted its best performance since 2002, according to the latest Provincial Economic Outlook report by RBC Economics.

Ontario’s economy has picked up and posted its best performance since 2002, according to the latest Provincial Economic Outlook report by RBC Economics. Even better news, according to the report, is that the province's economy is expected to enter an expansion phase this year as it finally moves beyond recovery from its 2008-2009 recession losses.

Thanks to a number of positive economic indicators in the past several months, the RBC report says Ontario's real GDP (gross domestic product) is forecast to grow by 3.1 per cent in 2011. Some positive indicators include: the impressive gains by the provincial labour market since late summer and early fall of 2010; the growth of consumer retail sales at the fastest rate in years; and non-residential investment maintaining its second fastest rate of increase since early 2006. In addition, merchandise exports recently regained ground while motor vehicle production surged in January.

"Generally, conditions are expected to continue to improve this year, enabling the province to complete its recovery and start to expand again," said Craig Wright, senior vice-president and chief economist, RBC. "This next stage of Ontario's economic cycle will increasingly rest on strengthening demand from the United States, which we forecast will grow faster in 2011 than it did in 2010 (3.4 per cent up from 2.8 per cent)." Of particular importance for the province is the expectation of continued increases in U.S. motor vehicle sales, which are projected to rise by nearly 15 per cent to 13.2 million units this year.

The RBC report notes, however, that the anticipated levelling-off of capital investment in various public infrastructure projects will be a restraining factor on provincial growth this year. "Public capital spending will contribute significantly less to growth this year than it did in 2010; yet further strong increases in transportation-related outlays, including public transit, will maintain a high level of activity overall," explains Wright.

Overall, Ontario’s domestic economy has performed quite strongly in the recovery so far. In fact, final domestic demand surpassed pre-recession peaks at the start of last year and has moved further above that ever since.

With the majority of economic indicators pointed in a positive direction, RBC also forecasts Ontario's economy to grow by another 3.1 per cent in 2012 as stronger external trade performance lends further support to the expansion. For more information or to view the full report visit www.rbc.com/economics/index.htm.

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