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Stronger U.S. growth and low gas prices should drive Ontario faster in 2015

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by John Clinkard

Midway through the first quarter of 2015, there is clear evidence that the “tailwind of stronger U.S. manufacturing” we alluded to in Snapshot #1 of 2014, has given a significant boost to Ontario’s economic health over the past 11 months.
Stronger U.S. growth and low gas prices should drive Ontario faster in 2015

This observation is based on the fact that year to date, the total value of Ontario's exports has increased by a very solid 7.1% compared to the same period in 2013.

This gain was almost entirely (93.6%) the result of a 9.3% year-to-date increase in exports to the United States and, in large part, due to strength in sales of manufactured goods (+6.7%) and consumer goods (+14.2% ).

Driven by this strong demand for the province's manufactured goods, shipments of manufacturers have increased by 6.3% year to date compared to a 0.6% year-to-date decline during the first ten months of 2013.

At first glance, the fact that manufacturing employment in Ontario has increased by a mere 3,300 over the past twelve months suggests that firms in the province have significantly boosted their output without adding staff.

However, a closer look reveals that manufacturing employment has increased by 23,800 since mid-year.

This was the largest six month increase in manufacturing employment since mid-2012 and just under half of the total number of jobs added (55,900) since June of 2014.

Further, since mid-year, the vast majority (88%) of the jobs added in Ontario have been full time and most (70%) have been in the private sector.

Looking ahead, despite the impact of softer demand for its domestic exports of resource-related manufactured goods, the pace of Ontario's foreign exports should steadily quicken over the course of 2015. This will be due to the effects of a steady gradual strengthening of U.S. consumer spending 'fuelled' in part by lower energy prices and the positive impact of a significant improvement in international competitiveness resulting from the 16.8% depreciation of the Canadian dollar over the past 27 months.

Further, this improvement in external demand should be complemented by a strengthening of consumer spending and residential construction caused by a combination of persisting low interest rates, rising consumer confidence and an increase in disposable income as a result of the 35% drop in gas prices since mid-2014.

Given this combination of strengthening external and domestic demand, we expect the Ontario economy will grow in the range of 2.8% to 3.2% this year and by 2.5% to 3.0% in 2016, after an estimated increase of 2.4% in 2014.

Stronger U.S. growth and low gas prices should drive Ontario faster in 2015

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