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Time for Ontario’s economy to shine, says RBC economist

0 756 Economic

by Don Procter

This is the year for Ontario’s economy to shine and for it “to be the strongest growing province” in Canada, says one economist.
Time for Ontario’s economy to shine, says RBC economist

"We've been near the top for several years but we haven't been the top-growth province for some time," Dawn Desjardins, vice-president and deputy chief economist, RBC, told delegates at the Ontario Construction Secretariat's recent State of the Industry & Outlook Conference.

Desjardins who delivered the economic key address at the conference, called RBC's forecast for Ontario cautiously optimistic.

Optimism, she said, arises in part because the data from countries around the world shows a pickup in economic momentum.

The big bank, however, is cautious about its forecast because of "big changes in the pipeline" — many centred on what the Trump administration eventually chooses to do with trade rules, deregulation, immigration, taxes and other factors impacting the U.S. and global economies.

"We think it will have an impact on Canada and in particular Ontario as we go forward."

In the Greater Toronto Area, key drivers of the construction economy are infrastructure and high-rise residential development. While the latter has been strong for years, there are signs that boom could be in its late stages.

John Mollenhauer, president and CEO of the Toronto Construction Association, said he's concerned about the impact that tightening lending requirements will have on the booming highrise construction sector where development prices continue to spike.

He is concerned that because interest rates "have been artificially low for a very long time," a sharp increase could have a negative effect on high-rise construction.

In 2018, interest rates are projected to rise by 75 basis points to 1.25 per cent, said Desjardins.

She told delegates that "if our forecasts are correct" the Bank of Canada could implement interest rate increases "towards two per cent" in 2019 — in an effort to "moderate economic activity."

Desjardins told delegates while high-rise residential price increases continue to be strong, there are concerns that good times might be coming to an end. As interest rates go up, it could look "very much like a bubble."

On another front, Desjardins projected that Canada's dollar will see a "modest deterioration" this year, but that does not mean a pickup in demand for Canada's exports — particularly to the U.S. That is because the currencies of other countries competing in the export trade market (Mexico, for example) have dropped even more than Canada's.

A pickup in U.S. business investment will increase demand for Canadian exports (not just in the oil and gas sector) "but we think it is going to be a pretty modest story as we go through the next couple of years."

Impetus behind a strong economy in the GTA and Ontario is the province's rollout of its $137 billion infrastructure program which includes many needed transit and transportation upgrades, hospitals and schools.

Kevin Flynn, Ontario's minister of labour, told the conference that because of the sizable skilled labor force required to build that infrastructure, the province has earmarked about $174 million in 2016/17 for programs "to support apprentices, the employers and training delivery agents. . ."

Ontario is committed to developing the next generation of skilled workers which the province will "depend on" for much of the new infrastructure, Flynn said, noting that apprenticeship registrations have grown from 17,100 in 2002/2003 to more than 25,600 last year.

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