How healthy is Ontario’s economy—outside of Toronto?
Earlier this week, the Government of Ontario put out a news release touting Ontario’s job-creation numbers. According to the release, province has enjoyed positive net job creation for the past four months.
It’s good news that Ontario has generally enjoyed strong economic growth so far this year. However, it’s important not to overemphasize short spurts in economic growth (or short periods of weakness), since economic data from month-to-month and quarter-to-quarter tend to be volatile. To better understand the health of Ontario’s economy and its long-term growth prospects, it’s important to keep the big picture in mind.
For starters, let’s put the recent increase in economic growth in Ontario into historical context. Specifically, the stronger performance in 2016 and 2017 follows an extended period of economic weakness. From 2003 to 2015, inflation adjusted per-person economic growth in Ontario averaged just 0.5 per cent annually. That’s about half the rate of growth in the rest of Canada.
Again, while it’s encouraging to see the provincial economy improving, Ontario still has a long way to catch-up to where we would have been with healthy growth over the past decade and a half.
Moreover, these data raise an important question about the future. Should we expect weak growth more in-line with longer-term trends, or should we expect the recent improvement in economic performance to continue?
It’s impossible to answer that question for certain. As baseball legend Yogi Berra is credited with saying, “it’s tough to make predictions—especially about the future.” This is certainly true when it comes to economics.
Nevertheless, there are good reasons to be concerned about Ontario’s future growth prospects. There’s been a decline in business investment in recent years. As a recent Fraser Institute study showed, current projections suggest firms will invest less money in Ontario this year than in 2008. In other words, business investment still hasn’t recovered to pre-recession levels. Given the importance of business investment as a driver of long-term growth, these data are worrying.
Furthermore, applying a regional lens to analyze Ontario’s economy shows that economic growth in recent years (which has been less than impressive) has been heavily concentrated in a few regions of the province.
Specifically, a recent Fraser Institute study showed that 99 per cent of all new net jobs created in Ontario between 2008 and 2016 were created in either the Toronto or Ottawa Census Metropolitan Areas. In other words, if the rest of Ontario is taken as a whole, there has been almost no net job creation since 2008.
To understand just how many areas of Ontario have struggled, consider that out of the province’s 23 major urban areas, just six of them—nearly all in the Ottawa CMA or the Greater Golden Horseshoe surrounding Toronto—experienced job-creation rates at or above the national average between 2008 and 2016. In the rest of Ontario’s urban areas, job growth was either below the national average or negative.
The recent improvement in Ontario’s economic fortunes is good news, but the longer-term trends and outlook for the future are less encouraging. In reality, over the past decade-and-a-half Ontario has generally lagged behind the national average in economic growth. And crucially, in many parts of the province the local economies have not fully recovered from the 2008/09 recession.