February 11th - 2008

Dip in new home builds slows growth in Ontario

Ontario's economy will continue to struggle with a beleaguered manufacturing sector and the effects of Canada’s high dollar slowing growth to 1.4 per cent in 2008, according to a provincial forecast released in January by RBC.

Ontario's economy will continue to struggle with a beleaguered manufacturing sector and the effects of Canada’s high dollar slowing growth to 1.4 per cent in 2008, according to a provincial forecast released in January by RBC.

“The most serious downsides to Ontario's economy will continue to stick for some time, yet we do see economic growth improving by a full percentage point in 2009,” said Craig Wright, senior vice-president and chief economist, RBC. “While a recession is not impossible, we believe that the province can avoid one despite a growing list of worries.”

A decline in new home construction since the 2003 peak will help to slow the province’s economy, with numbers expected to decrease from 68, 100 in 2007 to 66, 200 in 2008. Other factors weighing down the province's economy, according to the report, include: an elevated Canadian dollar that is hammering away at manufacturers' export competitiveness; negative exposure to weak U.S. housing and automotive markets; strong competition from Asian manufactured goods; and weak growth in machinery and equipment investment despite capital cheapening influences of a strong currency.

However, the report notes that forecasted currency depreciation, a modest weakening in commodity prices, and acceleration in U.S. growth later this year should help boost Ontario's economy in 2008. Auto production should also grow in late 2008 and into 2009 as U.S. demand stabilizes, a new assembly plant swings into production, and new models are introduced. A reasonably vibrant services sector, strength in the tech sector, job growth and healthy consumer spending will also help bridge the gap.

“Modest fiscal stimulus announced in the fall 2007 provincial budget is welcome news, especially regarding taxes,” said Wright. “However, federal-provincial cooperation is still needed to achieve sales tax harmony. Ontario's lack of tax competitiveness is a major concern as, unlike B.C., it still applies the provincial sales tax to capital goods.”

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Ontario Real Estate Association

Jean-Adrien Delicano

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Ontario Real Estate Association
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